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Anglo Irish Cost May Exceed 35 Billion Euros, S&P Says

Anglo  Irish’s senior debt was yesterday cut to the lowest investment grade rating by Moody’s Investors Service, which said it may reduce the rating to junk unless the government
guarantees bondholders against losses. Photographer: Crispin Rodwell/Bloomberg
Anglo Irish’s senior debt was yesterday cut to the lowest investment grade rating by Moody’s Investors Service, which said it may reduce the rating to junk unless the government guarantees bondholders against losses. Photographer: Crispin Rodwell/Bloomberg

Sept. 28 (Bloomberg) -- Anglo Irish Bank Corp.’s bailout may cost Ireland’s government more than 35 billion euros ($47 billion), Standard & Poor’s credit analyst Trevor Cullinan said, exceeding the rating company’s previous estimate.

“Estimates which were previously strongly against our 35 billion euro now seem to be coming in line with that recapitalization cost,” Cullinan said in an interview conducted Sept. 14 and broadcast by Dublin’s RTE Radio today. “So the government’s kind of Plan B with Anglo means this 35 billion euros could even be exceeded.”

Ireland’s financial regulator is due this week to release an estimate for recapitalizing the state-owned lender as it is split into a deposit bank and an asset-recovery unit. Irish bonds fell today, pushing the extra yield investors demand to hold the country’s 10-year debt over German bunds to a record.

“The sell-off seems to be triggered by the S&P remarks,” said Fergal O’Leary, a director at Dublin-based Glas Securities, which specializes in fixed-income markets. “S&P’s previous estimate of 35 billion euros was at the upper end of market expectations. Any suggestion that this could be raised is a concern.”

S&P lowered Ireland’s credit rating to ‘AA-’ on Aug. 24, warning of further possible downgrades. The ratings company said yesterday it doesn’t expect Ireland to default on its debts. Anglo won’t need more than 29 billion euros, two people with knowledge of the matter said last week.

Ratings

If the 35 billion-euro estimate is exceeded, “there potentially could be further downward rating actions from Standard & Poor’s,” said Cullinan.

The premium investors charge to hold Irish 10-year debt over the German equivalent, Europe’s benchmark, rose to 448 basis points today from 430 yesterday. Ireland has a “clear pathway” out its banking crisis, which has come at a “horrendous” cost, Irish Foreign Affairs Minister Micheal Martin said today in New York in an interview on Bloomberg Television’s “InBusiness With Margaret Brennan.”

Martin’s government colleague, Finance Minister Brian Lenihan, plans to meet investors in New York next month to convince them the country can withstand a banking crisis, according to a government aid with knowledge of the matter. The visit is being planned following a World Bank and International Monetary Fund meeting in Washington DC in October, the person said, declining to be identified as details haven’t been finalized.

‘Resolute’

Anglo Irish’s senior debt was yesterday cut to the lowest investment grade rating by Moody’s Investors Service, which said it may reduce the rating to junk unless the government guarantees bondholders against losses. Anglo Irish’s subordinated debt, guaranteed by Ireland’s government until Sept. 29, was downgraded to ‘Caa1’ from ‘Ba1.’

The Irish government appears to “remain resolute that there will be no renegotiation” with Anglo Irish’s senior bondholders, Goodbody Stockbrokers said in a note to clients today.

The cost of credit-default swaps to insure the senior debt of Anglo Irish rose 4 basis points today to 940, after earlier reaching an all-time high, according to data provider CMA. The contracts have more than doubled since July, CMA prices show. Credit-default swaps on Irish government debt climbed 4.5 basis points to 493 from a record-high closing price yesterday, CMA prices show.

“It’s all about getting clarity on Anglo at the moment,” said O’Leary at Glas.

To contact the reporters on this story: Finbarr Flynn in Dublin at fflynn3@bloomberg.net; Louisa Fahy in Dublin at lnesbitt@bloomberg.net

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net

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