Moody’s downgrades EAA CBB’S deposit

FRANKFURT

Global rating agency Moody’s today downgraded the bank deposit ratings of Dublin- based EAA Covered Bond Bank plc (EAA CBB) to A3/Prime-2 from Aa1/Prime-1. The outlook on the A3 deposit rating is negative.

This rating action concludes Moody’s review for downgrade of EAA CBB’s deposit ratings initiated on 10 September 2012. The downgrade of EAA CBB’s deposit ratings follows Moody’s lowering on 6 September 2012 of Ireland’s local and foreign-currency bond and deposit country ceilings to A3 from Aaa. The lowering of the country ceiling had prompted Moody’s review of EAA CBB’s deposit ratings.

EAA CBB’s deposit ratings principally benefit from an unconditional and irrevocable cross-border guarantee from the bank’s 100% owner Erste Abwicklungsanstalt (EAA; Aa1 negative/Prime-1). EAA is the Germany-based wind-down agency of the former WestLB (now Portigon AG; not rated, except for state-backed “grandfathered” bonds that are rated Aa1, negative). Whilst EAA CBB’s deposit ratings qualify for credit substitution based on the guarantee, the lower ceiling means that in principle, the highest rating that can be assigned to a domestic issuer in Ireland is now A3. The lower ceiling reflects the risk of Ireland’s exit from the euro area and currency redenomination in the unlikely event of a default by the Irish sovereign; and the generally elevated risk of economic and financial dislocation in Ireland.

The downgrade of the bank’s deposit ratings to A3/Prime-2 reflects Moody’s assessment that the guarantee of EAA does not cover a redenomination scenario and that EAA CBB’s deposits would be governed and enforced under Irish law; the deposits would therefore be subject to redenomination and currency controls. Furthermore, the rating agency has taken into account the composition of the entity’s assets, which primarily consist of US dollar and Eurodenominated, non-Irish sovereign risk.