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Bond fears put bank ratings at risk

IRISH banks are facing a damaging downgrade by a key rating agency due to recent comments by some opposition spokespeople about 'burning' bondholders, the Irish Independent has learned.

Moody's, one of the three largest global agencies, will slash the credit rating of all the banks today over worries that a new government might not protect senior bondholders like the outgoing government. This will make it even harder for Irish banks to attract funding.

It is understood Moody's staff have held two meetings in recent days to study the comments of Labour Party and Fine Gael representatives.

The agency is expected to say today that comments during the campaign suggest senior bondholders are not as safe as was previously thought.

A number of parties have said they will either dishonour all senior debt or the portion of debt which has no government guarantee. Such comments are making the markets increasingly nervous.

It comes as the Irish banks suffer major outflows of deposits and become more reliant on emergency assistance from the Irish Central Bank. One source suggested last night that the Irish banks could be given so-called 'junk' status, which means they are regarded as highly-risky investments.

Meanwhile, Fine Gael yesterday threw Bank of Ireland a lifeline that will help it avoid becoming the latest bank taken into State control. The bank had been due to get €1.4bn of taxpayers' money at the end of February -- which would have put it into majority government ownership.

But Fine Gael, which looks set to lead the next Government, yesterday confirmed that it would not put any money into Bank of Ireland after the next round of banking stress tests are done.

The bank had been appealing to be allowed to go through the stress tests -- which will confirm how much cash it needs for the next year -- before it had to approach the private market for cash. "We couldn't have gotten private money before the stress tests because investors would have known we might have needed more money soon. This gives us a better chance," one source said.

Fine Gael Finance spokesman Michael Noonan yesterday said that Fine Gael wanted to re-negotiate the EU-IMF bailout deal in whatever way was possible.

"We think that the bailout package is far too expensive and too onerous on Irish taxpayers," he said.

Irish Independent