Moody's Luck of the Irish Has Run Out

Moody's is playing catch up with European bank downgrades, particularly with regard to the Irish banking institution. The chart below shows the number of notches they have downgraded banks in various European nations.

LTDR means long-term debt rating and BFSR (overview link at the end) stands for bank financial strength ratings. As with other types of ratings, the agency has been behind the curve on European banks. Moody's fully bought the propaganda coming out of European governments and banks that they had little US sub-prime exposure and therefore were in great shape. If the real estate exposure is not sub-prime, it's got to be fine.

Here is a Reuters story from April 2008:

Irish banks have only limited exposure to subprime and the other related risky assets that have sparked huge writedowns at major international finance houses, Ireland's central bank said on Friday.

In its latest quarterly report, the central bank said that stress-testing showed Irish banks, which have a weighting of over 40 percent of Ireland's stock market, were well-capitalised and profitable.

Of course what Moody's didn't see (because by then they were totally fixated on their little US sub-prime problem) was how leveraged Irish banks were in their exposure to Irish real estate, including development and property loans. A few months after the Reuters story above, the Irish government was cooking up a bailout. They created a "bad bank" fund (sounds familiar?) called National Asset Management Agency or NAMA (TARP, Irish style) to purchase massive amounts of bad loans from Irish banks using government funds.

Irish Sunday Business Post: The night of September 29, 2008, saw the state decide to guarantee the loans and deposits of the Irish banks, amid fears that the entire sector was about to collapse.

The state’s involvement in the Irish banking system - massive transfers of capital, nationalisation and now the National Asset Management Agency (Nama) scheme to rescue the sector from the consequences of its own disastrous lending policies - all stem from the fateful decisions made that night.

Anglo Irish Bank (AIB) got hit particularly hard.

Finfacts: Anglo, along with other major lenders, has already taken some provisions to cover the cost of its deteriorating loan book -- the interim figures published on May 29 last showed loan "impairment" charge of €4.1bn.

However, the losses in the next report look set to be substantially greater. Apart from being NAMA's biggest single client, Anglo is also the bank with the most exposure to the troubled commercial and development property sector.

The fact that Irish banks came close to the brink and were saved by the government because of the types of exposures they had was slow to show up on Moody's radar screens. Until it happened. Of course the downgrades followed rapidly. A similar story took place in Spain and some other countries.

Moody's continues to get paid for financial strength ratings of banks.

Comments

[csbosox:]

AIB is Allied Irish Banks, Anglo Irish Bank was taken over by the gov't. Which bank are you referencing in your article?

Oct 08 11:51 AM

[jimmy46:]

AIB is Allied Irish Banks, Anglo Irish Bank was taken over by the gov't. """"""""""

SORRY BUD, YOU'VE GOT YOUR BANKS MIXED UP,
GET A STOCK QUOTE FOR AIB,
$8.80 TODAY.

Oct 08 01:35 PM

[csbosox:]

Jimmy46, I am not quite sure if you are saying that I am wrong or the author is wrong. I can assure you it is not me. I have been an AIB stockholder since Jan of this year. The Finfacts article is talking about a different company, Anglo, which "trades" under AGIBY.PK and was taken over my the gov't. Anglo is NOT Allied Irish Bank. Mr. Kurtz, please correct your article.

Oct 08 04:55 PM

[Walter Kurtz:]

Gentlemen,

The Seeking Alpha editor put the tickers in, and the AIB one is clearly incorrect. Here is the original:
narrowtranche.blogspot...


On Oct 08 04:55 PM csbosox wrote:

> Jimmy46, I am not quite sure if you are saying that I am wrong or
> the author is wrong. I can assure you it is not me. I have been an
> AIB stockholder since Jan of this year. The Finfacts article is talking
> about a different company, Anglo, which "trades" under AGIBY.PK and
> was taken over my the gov't. Anglo is NOT Allied Irish Bank. Mr.
> Kurtz, please correct your article.

Oct 08 05:51 PM

[swaps:]

Right, the wrong Moody's rating lulled me into AIB and I am down 50 percent still even with the bounce back. I know. Use stop loss.

Doesn't the astute Buffet own Moody's too? If so, then Moody's cannot be allowed to fail. Buffet is too big to not be catered to by the lap dogs of international banking elites.

Oct 09 10:59 AM

[Moody Smoody:]

AIB is Allied Irish Bank. Anglo Irish is a different entity. Since all banks lie it hardly makes any difference, and if you beleive anything Moody's says then you should subscribe to Smoodys, for which I can sell you a subscription.
Moodys and Smoodys lulled stockholders into a hibernation noting AIB did not have any exposure to the 'subprime' toxic assets, what they did not say was that the Irish banks created their own realestate bubble. Moody, Smoody all the same.

Oct 13 07:51 PM