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Fitch Boosts Irish Bailout Exit Prospects Improving Outlook

Fitch Boosts Irish Bailout Exit Prospects as Raises Outlook
Fitch today affirmed its BBB+ stance on the nation, citing a narrowing of the fiscal deficit and a view that its banks probably won’t need further state capital. Photographer: Matt Lloyd/Bloomberg

Fitch Ratings raised its outlook on Ireland’s debt to stable from negative, boosting the government’s efforts to become the first euro-region nation to exit a bailout since the debt crisis took hold.

Fitch late yesterday affirmed its BBB+ stance on the nation, citing a narrowing of the fiscal deficit and a view that its banks probably won’t need further state capital. London-based Fitch, which removed Ireland from watch negative in January, stripped the nation of its AAA rating in April 2009.

“It is encouraging to see further positive noises from the ratings agencies around Ireland,” Philip O’Sullivan, an economist at Dublin-based NCB Stockbrokers, said by e-mail. “Following the public recognition by Moody’s that the risks around Ireland have abated, the improved outlook on Ireland from Fitch is an incremental positive.”

Moody’s Investors Service yesterday removed a warning that Ireland may follow Greece in inflicting losses on investors, after the government made a partial return to credit markets and lowered its deficit. Ireland stepped out of international bond markets and sought a 67.5 billion euros ($86 billion) bailout in 2010 as its banking system came close to collapse.

The yield on Ireland’s benchmark security due in October 2020 was unchanged today at 4.73 percent, down from 14 percent in July 2011.

Bill Sale

Ireland plans to hold its fourth public auction of three-month treasury bills today. Glas Securities, a Dublin-based fixed-income firm, said today in a note a sale of longer-term debt by Ireland may be “imminent.”

The debt agency described Fitch’s move as an encouraging recognition of the state’s efforts to deal with the crisis sparked by the implosion of a real-estate bubble in 2008. The state has pumped about 64 billion euros into its financial system and now controls five of the six biggest domestic lenders.

Prime Minister Enda Kenny’s government may be waiting a while before its credit rating is raised. Ireland’s rating remains “constrained and faces downside risk” due to high public and private debt levels, Fitch said.

Ireland’s Finance Ministry lowered its growth forecast for next year and 2014 amid slowing export expansion and falling consumer spending. Ireland’s economy is forecast to expand by 1.5 percent next year, compared with an April estimate of 2.2 percent, the ministry said.

Top Grade

In a phone interview, Fitch analyst Gergely Kiss said the prospects of an Irish upgrade are “very low” in the short term. Ireland received the top rating from Fitch in 1998, before losing it three years ago.

Moody’s rates Ireland at sub-investment grade, while Standard & Poor’s has a negative outlook on it, though has kept the country at investment grade.

“While not having the sort of game-changing impact that a similar decision from Moody’s would signify, the decision from Fitch” is reward for Ireland’s resolve “in taking the hard decisions,” said Owen Callan, an analyst at Danske Bank A/S in Dublin, a primary dealer in Irish government debt.

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