Moody’s downgrades EAA CBB’S de­posit

The Pak Banker - - Front Page -

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.

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