DBRS Confirms Irish Bank Resolution Corporation Limited at CCC, Trend Stable

DBRS, Inc. (DBRS) has today confirmed the non-guaranteed senior debt ratings of Irish Bank Resolution Corporation Limited (IBRC or the Bank), including its Issuer Rating of CCC. The trend on all non-guaranteed ratings is Stable. Concurrently, the ratings have been removed from Under Review with Negative Implications where they were placed on 29 June 2011. Today’s rating action does not affect the Irish Government guaranteed long-term debt and deposit ratings which remain, at A (low) with a Negative trend, in line with DBRS’s rating of the Republic of Ireland.

The previous placing of the ratings Under Review with Negative Implications reflected DBRS’s view that non-guaranteed senior bondholders of IBRC were at increased risk of adverse actions given the weakened state of the Irish banking system, the wind-down nature of IBRC and statements made by the Irish Government. Today’s rating action reflects DBRS’s view that these risks have diminished. The Bank has gradually reduced the amount of non-guaranteed senior unsecured debt outstanding as it continues to advance the run-off of its loan book. To this end, during 1H12, IBRC repaid its two largest senior unsecured obligations. As a result, at 30 June 2012, IBRC had just EUR 169 million of non-guaranteed senior unsecured debt outstanding, greatly reduced from EUR 2.6 billion at year-end 2011. Given the limited economic benefit to the Irish Government of introducing burden sharing at this point and the European Union’s strong opposition to applying haircuts to senior unsecured bondholders, DBRS sees the risk for senior bondholders as having receded.

However, the ratings also take into account the uncertainty as to the willingness, timeliness and level of support that the Irish Government would provide IBRC should it be required during the wind-down stage. Given the wind-down status of the Bank and the constrained fiscal position of the Irish Government as it seeks to address its budgetary deficit, DBRS sees the Irish Government’s appetite to provide timely support to IBRC as uncertain.

Further, the ratings reflect the weak earnings capacity and financial profile of IBRC. For 1H12, IBRC generated a net loss of EUR 724 million primarily due to impairment charges and other provisions which totalled EUR 1.1 billion. DBRS sees IBRC as likely to remain loss making for the near to medium-term given the still difficult macroeconomic environment in Ireland, the challenged nature of the lending book, and the Bank’s wind-down status. Further, IBRC is reliant on central banks and monetary authorities for liquidity. To this end, at the half-year to 30 June 2012, EUR 42.3 billion, or 89% of IBRC’s funding was through central bank facilities. The ratings also consider the stressed credit profile of the lending book. Impaired loans were 66% of the loan book at the end of June 2012, evidencing the extremely weak credit performance of the loan portfolio.

Also, DBRS has today discontinued the ratings of certain funding programmes of IBRC, which are now closed.

Notes:
All figures are in Euros unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations. Other methodologies used include the Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments. Both can be found on the DBRS website under Methodologies.

The sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Roger Lister
Rating Committee Chair: Alan G. Reid
Initial Rating Date: 7 September 2006
Most Recent Rating Update: 9 August 2012

For additional information on this rating, please refer to the linking document under Related Research.