Moody's downgrades Irish banks over election worries

Ratings agency Moody's yesterday downgraded the creditworthiness of six Irish banks as politicians nearing a national election argued about when, or whether, the banks will get a further capital injection.

A new cash infusion was due at the end of the month. The current government has put off the issue until after the 25 February election, and the opposition parties most likely to form the next government oppose further aid for banks.

Ratings for the banks' unguaranteed senior unsecured debt were cut to junk status for Bank of Ireland, Allied Irish Banks, EBS Building Society and Irish Life & Permanent. The long-term unguaranteed senior unsecured debt of Anglo Irish Bank and Irish Nationwide Building Society, already rated as junk, were downgraded further.

Finance minister Brian Lenihan announced on Wednesday that the government would not be putting up to ?€10 billion (8.5bn) into the banks before the election, saying that the outgoing government no longer had a mandate to do so. However, Lenihan said he would advance the cash if the Fine Gael and Labour parties - which are favoured to form the next government - would formally request the money be committed.

Fine Gael and Labour both say they intend to renegotiate the €?67.5bn bail-out the government received from the European Central Bank and International Monetary Fund last year.

A mission from the European Commission and the IMF is in Dublin until next Wednesday to verify the implementation of the bail-out programme before Ireland can get the next instalment of the rescue loan.

The Commission indicated yesterday that it won't be easy for a new Irish government to renegotiate the terms because the agreement is with the state.