Credit rating agency Fitch has downgraded the long-term issuer default rating for Anglo Irish Bank.
The rating is a measure of the agency's view of the ability of the Stet-owned lender to meet its financial commitments on a timely basis. AAA is the highest possible rating. Fitch has cut its ratings for Anglo from A- to BBB+.
It has also put the bank on negative watch, revising its rating watch to Rating Watch Negative (RWN) from Rating Watch Evolving (RWE)
The agency said that the downgrade reflects Fitch's view regarding the level of future government support that will be available to Anglo's newly announced Asset Recovery Bank (ARB)
On September 8th, the Government announced its new restructuring proposal for Anglo, whereby the bank will be split into two separate legal entities: the Asset Recovery Bank (ARB) and the Funding Bank.
According to Fitch, despite being government owned, the Asset Recovery Bank, as a wind-down institution not engaging in new lending and decoupled from Anglo's deposit base, will be less systemically important than the current Anglo.
While Fitch expects the asset recovery bank to continue to benefit from a high level of government support, the scope of the long-term support for the entity may be less than what would otherwise be available to Anglo as a fully functioning deposit taking bank.
Fitch states that the decision to put Anglo on negative watch reflects significant further downside risk that could emerge for the unsecured unguaranteed creditors of the asset recovery bank under the proposed structure.
The agency says it expects that the ARB will have a very weak loss absorption capacity absent a recapitalisation, as the transfer of assets to Nama in the second half of this year will absorb most of Anglo's equity.
In addtion, the agency says that there is a possibility that an orderly wind-down of Anglo's assets under a recovery maximising plan may require the government to extend explicit guarantees to senior unsecured debt. If senior unsecured creditors benefit from explicit government guarantees, the rating of senior unsecured debt will be upgraded to that of a sovereign.
Fitch says it expects to resolve the rating watches once the details of the restructuring are announced and the government clarifies any explicit support measures and recapitalisation plans for the ARB.
