S&P's rating cut raises pressure on Irish price
August 26, 2010, Thursday
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Print Edition
IRELAND'S government faced mounting pressure yesterday to put a final price on bailing out its banks after a credit rating cut from Standard & Poor's pushed its borrowing costs higher.
After winning plaudits for moving quickly to tackle its deficit, Ireland is once again at the center of European debt fears with investors demanding a whopping 340 basis point premium to hold Irish 10-year debt over German Bunds, the highest level since the Greek financial crisis gripped in May.
S&P cut Ireland's long-term rating by one notch to "AA-" on fears of a substantially higher bill for supporting the banking sector and assigned a negative outlook, meaning another cut is more likely than not over the next one or two years.
Dublin hit back, saying S&P's analysis was "flawed."
S&P hiked its estimate of the cost to the government of recapitalizing the banks at 45 billion euros to 50 billion euros (US$63 billion), a figure dismissed by the country's debt agency in highly unusual criticism.
"Exceptionally, we have taken issue with the rating agency. It's something we don't like to do but there comes a point when the analysis is not robust," John Corrigan, the chief executive of the National Treasury Management Agency, told state broadcaster RTE.
Investors were rattled nonetheless.
"The banking situation is and should be No. 1 priority for the government for the next couple of months," said Dermot O'Leary, chief economist with Goodbody Stockbrokers in Dublin. "The market is already pricing in another downgrade and probably another two downgrades."
After winning plaudits for moving quickly to tackle its deficit, Ireland is once again at the center of European debt fears with investors demanding a whopping 340 basis point premium to hold Irish 10-year debt over German Bunds, the highest level since the Greek financial crisis gripped in May.
S&P cut Ireland's long-term rating by one notch to "AA-" on fears of a substantially higher bill for supporting the banking sector and assigned a negative outlook, meaning another cut is more likely than not over the next one or two years.
Dublin hit back, saying S&P's analysis was "flawed."
S&P hiked its estimate of the cost to the government of recapitalizing the banks at 45 billion euros to 50 billion euros (US$63 billion), a figure dismissed by the country's debt agency in highly unusual criticism.
"Exceptionally, we have taken issue with the rating agency. It's something we don't like to do but there comes a point when the analysis is not robust," John Corrigan, the chief executive of the National Treasury Management Agency, told state broadcaster RTE.
Investors were rattled nonetheless.
"The banking situation is and should be No. 1 priority for the government for the next couple of months," said Dermot O'Leary, chief economist with Goodbody Stockbrokers in Dublin. "The market is already pricing in another downgrade and probably another two downgrades."
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