DBRS Places Certain Ratings of The Governor and Company of the Bank of Ireland Under Review Negative

DBRS has today placed the long-term ratings of The Governor and Company of the Bank of Ireland (Bank of Ireland or the Bank) Under Review with Negative Implications, including its AA ratings for Long-Term Deposits and Long-Term Debt maturing after 29 September 2010 and the AAA ratings for Long-Term Deposits and Long-Term Debt maturing on or before 29 September 2010. The R-1 (high) Short-Term Debt ratings are unaffected by today’s ratings action.

The rating action on the Long-Term Deposits and Long-Term Debt maturing after 29 September 2010 (unguaranteed debt) considers the accelerated deterioration in the operating environment in the Bank’s core markets, Ireland and the UK. Moreover, the deterioration has intensified further since Bank of Ireland issued its 12 February 2009 interim management statement indicating that the Bank expects to record an underlying loss in the second half of its financial year ending 31 March 2009. The Bank expects to report a positive underlying result for the full year ending 31 March 2009.

DBRS is concerned that the weakening economic environment, rising unemployment and the continuing weakness in the Irish and UK housing markets will result in noteworthy earnings pressure and a temporary reduction in the Bank’s earnings generation ability. In DBRS’s opinion, the continued decline in asset values and the uncertainty as to the severity and duration of the recessions in the Bank of Ireland’s core markets is likely to drive loan impairments higher, reducing the Bank’s near to mid-term financial performance. Moreover, the deteriorating credit environment further exacerbates these concerns. DBRS does not see relief to these pressures in the Bank’s 2010 financial year. Accordingly, DBRS’s review will focus on the Bank’s ability to generate pre-provision earnings sufficient to offset the heightened level of credit costs and to what extent credit costs may exceed pre-provision earnings. Ultimately, DBRS will review the ability of the Bank to navigate the current crisis without suffering permanent damage to its earnings generation power or franchise, both of which underpin the intrinsic rating.

DBRS fully recognises both the intent and extent of governmental support afforded to Bank of Ireland and the Irish banking system. This support is factored in the SA2 support assessment for Bank of Ireland, which allows its final ratings to be higher than its intrinsic rating. Moreover, the governmental support is factored in designating the Bank of Ireland as a Critically Important Bank (CIB) for the Irish Banking system. In Ireland, the floor rating for banks and their key operating businesses is A (high) for long-term obligations and R-1 (middle) for short-term obligations; for bank holding companies (BHCs), it is ‘A’ for long-term obligations and R-1 (middle) for short-term obligations. The level of the floor rating reflects DBRS’s expectation that that the Irish government will provide support, if necessary, to prevent any CIB from weakening below this rating level. The trend for these floor ratings is Stable. Accordingly, the designation of the Bank of Ireland as a CIB limits any potential downgrade to the floor rating.

The Under Review with Negative Implications status on the government guaranteed debt considers DBRS’s concerns that the deterioration in economic prospects and the lower than expected tax revenues during the first two months of 2009 may lead to a change in DBRS’s internal assessment of the Republic of Ireland.

Note:
The applicable methodologies are, Analytical Background and Methodology for European Bank Ratings, Second Edition and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments.

This is a Corporate (Financial Institutions) rating.