Anglo Irish Bank’s Ratings Remain at Floor, Following 2009 Interim Results-Senior at A (high)

DBRS has today commented that the ratings of Anglo Irish Bank Corporation Limited (Anglo Irish or the Bank) are unaffected by the Bank’s 2009 interim results indicating a loss before tax of EUR 4.1 billion, as the ratings are at the floor rating. Anglo Irish’s Long-Term Deposits and Long-Term Debt maturing after 29 September 2010 ratings remain at A (high), which is the floor level for critically important banking organisations (CIBs) in Ireland. On 9 March 2009, DBRS designated Anglo Irish as a CIB in Ireland. The trend on floor ratings is Stable.

Anglo Irish’s outsized loss for the six months ended 31 March 2009 was largely driven by significantly higher lending impairments, which were the result of the continuing deterioration in the economic environment in the Bank’s core markets and significant declines in property values. During the six month period, Anglo Irish recorded EUR 3.7 billion of specific impairments charges and EUR 400 million of collective impairments, which, in total, are significantly higher than those of previous periods. Lending impairment charges totaled 5.6% of the Bank’s average loan balance. Total impairment provisions, at 31 March, total EUR 4.9 billion, which is 46% of impaired loans or 6.9% of gross loans and advances to customers. Further, loans classified as past due, but not impaired, increased dramatically to EUR 12.9 billion, evidencing the rapid deterioration in Anglo’s asset quality. Given the weakness in the economic environment and the deteriorating property values, Anglo Irish has stated that it expects impairment losses will likely reach EUR 7.5 billion.

Further, earnings were pressured by the decrease in lending arrangement fee income as new business volumes were markedly lower, whilst funding costs increased. DBRS anticipates Anglo Irish’s earnings generation ability will remain under substantial pressure in the near to medium term, as the property values in its core markets continue to decline, driving further losses, and lending margins remain suppressed due to new lending levels remaining subdued and funding costs continuing to be elevated.

Anglo Irish’s funding and liquidity profile remains reliant on central banks. During the six month period, customer funding balances as a percentage of total funding declined to 43% from 58% at 30 September 2008, largely caused by a EUR 14.5 billion decrease in non-retail deposits. As such, Anglo Irish’s borrowings from central banks increased to EUR 23.5 billion from EUR 7.6 billion at 30 September 2008. Capitalisation is stressed. The Bank’s total capital ratio at 31 March 2009 was 8.2%, which is slightly above the 8% minimum level. Core Tier 1 capital was significantly reduced by the period’s reported loss, however the Financial Regulator has granted discretions and derogations from certain regulatory capital requirements. Concurrent with Anglo Irish’s earnings announcement, The Minister of Finance announced that, subject to regulatory approval, the Government will provide Anglo Irish up to EUR 4.0 billion of capital. In DBRS’s view, the continued and ongoing support of the Irish Government should allow Anglo Irish to rebuild investor confidence in the Bank.

DBRS continues to monitor Anglo Irish’s efforts to restructure the Bank, including its forthcoming business plan; as well as the impact of NAMA once further details are finalised. DBRS believes that the transfer of Anglo Irish’s land and development loans to NAMA will remove a certain degree of uncertainty as to future impairments whilst enhancing the Bank’s liquidity profile.

Notes:
All figures are in EUR unless otherwise noted.

The applicable methodologies are, Analytical Background and Methodology for European Bank Ratings, Second Edition and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments, which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.