S&P cuts Ireland outlook from stable to negative

verbatim · January 9, 2009, 12:22pm

That’s all I have right now.

bodyofevidence · January 9, 2009, 12:29pm

heres reuters on it

Jan 9 - Standard & Poor’s Ratings Services said today it revised its outlook on the Republic of Ireland to negative from stable, on what we view as mounting fiscal pressures and deterioration of key economic sectors. At the same time, the ‘AAA’ long-term and ‘A-1+’ short-term sovereign credit ratings were affirmed. Standard & Poor’s also affirmed its ‘AAA/A-1+’ ratings on the debt programs and instruments of those Irish banks where they are guaranteed until maturity by the Republic of Ireland. For more details, see “S&P Details How The Irish Government Guarantee Applies To Debt Programs Of Four Irish Banks,” published on Nov. 11, 2008, on RatingsDirect.
“The outlook revision reflects our opinion of the rising economic policy challenges stemming from the contraction of the key housing, construction, and financial sectors, which have spurred many years of strong economic growth and fiscal consolidation,” said Standard & Poor’s credit analyst Trevor Cullinan. According to the European Commission, **property-related tax **(capital gains tax and stamp duty) accounted for 15% (3.8% of GDP) of total tax revenues in 2006, falling to 8% in the first eight months of 2008, the single most important factor in the deterioration in the general government balance. We have observed that general government debt levels also increased substantially between 2007 and 2008, by more than 16% of GDP, as a result of the widening deficit, although a substantial portion of the increased indebtedness (10% of GDP) remains in Exchequer cash balances as a liquidity buffer.
We note that the government has also extended guarantees to seven domestic credit institutions through Sept. 29, 2010, increasing general government guaranteed debt to an estimated 228% of GDP in 2009. **Banking system exposure to the property and construction sector of about one-third of total loans **(excluding interbank lending) suggests a high risk of asset deterioration at these institutions.
The ratings on the Republic of Ireland are supported by what we view as the flexibility of its economy, high per capita income, and a favorable demographic structure. The government’s commitment to contribute 1% of GNP per annum to the National Pensions Reserve Fund (NPRF), in our opinion, reduces the fiscal burden of population aging more than in some other European countries. However, the government is expected to use NPRF assets to assist in funding an estimated EUR10 billion (5% of GDP) recapitalization of its domestic banking sector.
“The negative outlook reflects our view of the likelihood of a downgrade if ongoing fiscal measures to recapitalize the banks and boost the economy fail to improve competitiveness, diversity, and growth prospects, thereby leaving a more difficult-to-manage debt burden,” said Mr. Cullinan. “Conversely, the negative outlook could revert to stable if the government’s strategy is successful and allows public finances to return to the stronger position of recent years,” he added.

yoganmahew · January 9, 2009, 12:30pm

Um, what fiscal stimulus would that be?

Fuck me, we are so fucking fucked it’s not fucking true. Excuse my French.

So are there any AA rated eurozone countries? What does an AA rated country normally pay for euro debt? (versus a AAA).

yoganmahew · January 9, 2009, 12:33pm

Does anyone remember the monoline insurance fiasco? The first step in the debt death tango was a downgrade on outlook. Same for the banks. This is more than a warning shot from S&P. As the rating agencies have consistently only rerated the horse long after it has been flogged to death, telling us that Irish sovereign debt will be put out to stud is like telling us there’s a residual value to Shergar.

verbatim · January 9, 2009, 1:05pm

Here’s how the 10 year spread of Irish goverment bond yields over German bunds has moved over the last year.

1 year ago 19 bps
6 months ago 45 bps
3 months ago 61 bps
1 month ago 118 bps
5 days ago 129 bps
today 141 bps

Doesn’t look very AAA does it?

bodyofevidence · January 9, 2009, 1:07pm

Thought it was 176bp on benchmarks? Anyhow, when you consider that this is on fairly low rates, the percentage spread is horrific

Peroni · January 9, 2009, 1:11pm

Now in irish times:

irishtimes.com/newspaper/breaking/2009/0109/breaking44.htm

Inis_Man · January 9, 2009, 1:18pm

Look, no one gives a monkeys what Standard and Poor’s have to say about our economy, it is now a completely discredited company along with the other main rating agencies who played no small part in the catastrophic situation now engulfing this and many other countries.
We make up our own mind based on RELIABLE information about what is going on, the last place anyone now turns for trustworthy ratings information is to a company like S&P.
And why hasn’t anyone there been put behind bars yet??
No doubt the I T still things what S&P has to say is news, as usual showing how far behind the curve the paper is on so many matters.

bodyofevidence · January 9, 2009, 1:23pm

While the raters may have problems, your implication is “this is pants, were grand”. No, were not.

yoganmahew · January 9, 2009, 1:25pm

Rubbish, rubbish, rubbish.

The ratings from the rating agencies are used by all major financial institutions and central banks to assess the value of the securities they support. It is enshrined in law in many countries that these ratings be used (for example in pension law in some countries).

Should Ireland be downgraded, there will be a surge of selling as pension companies dump Irish government bonds and bank bonds. It will lead to a further funding crisis for the banks - anyone know the gap between AAA and AA paper for banks?

Whether the rating agencies know what they are doing is an entirely different matter (personally, unless you are talking about Egan Jones, I doubt they do), but make no mistake, the ratings currently matter.

verbatim · January 9, 2009, 1:39pm

Lenihan seems to think it’s important anough to comment on

podge · January 9, 2009, 1:45pm

I think we need a taskforce.
Who should we put on it?

Brian X2
Coughlan
Turlough
Dessie G
D Begg
John “on the ditch” Hurley
Neary
Country T
Willie O’Dea

When S&P see the dream team of social partners we have assembled to handle this financial crisis, they will surely change their minds.

bodyofevidence · January 9, 2009, 1:45pm

or “ah jeeze lads, willya gimme a minute here”
No, they wont Brian

whizzbang · January 9, 2009, 2:05pm

are bang-bang and forty coats available?

Pill · January 9, 2009, 2:27pm

And some people want to us to maintain public spending at current levels.

gaius · January 9, 2009, 2:38pm

Didn’t S&P get the memo about not talking down the economy?

humphreyb · January 9, 2009, 2:43pm

Ratings of European Countries (scroll to bottom of page)

www2.standardandpoors.com/portal … 51572.html

jabaar · January 9, 2009, 3:27pm

This is all happening for Ireland at an alarming pace, the government need sot get the finger out very quickly. VAT has to come in line with the UK or close to it, excess/wasteful public spending eliminated, efficiencies in public services increased, quangos eliminated, and handouts (too many to mention) slashed. The bank issue is dragging on for way too long and this is the result. The shagging guarantee is now holding the country to ransom, the gov. needs to force the banks to clean the books or esle nationalize them all, ot hell with overpriced preference shares.
The international markets are going to have a field day with Ireland very soon

StoppedClock · January 9, 2009, 3:40pm

Nice

And in other unrelated news :

irishtimes.com/newspaper/breaking/2009/0109/breaking19.htm

bodyofevidence · January 9, 2009, 3:42pm

The Dail is back in two weeks time. The feckin markets, a la Biffo, will have to wait till hes ready. And he needs to talk to the social partners. And set up a forum. And take soundings.