Tag Archives: Bank of Ireland

Anglo Irish Downgraded – No Surprise

The rating action was another blow for the beleaguered bank. But its spreads were little moved as the market had already priced in the downgrade. In fact, Anglo Irish senior CDS trades with an implied rating of B, according to Markit Implied Ratings.

“A report in a Sunday newspaper suggested that some of Anglo Irish’s debt will be tendered at a discount to par or swapped for equity in the ARB.”

Gavan Nolan


Spreads were lacking direction in a relatively uneventful day, Monday. “Perhaps the most notable occurrence of the day was Moody’s downgrade of Anglo Irish Bank,” vice president Gavan Nolan at Markit Credit Research writes in his daily market alert.

The agency cuts its rating on Anglo Irish’s senior debt by three notches to Baa3, citing the likelihood of further asset quality deterioration and the lack of an explicit government guarantee.

Moody’s warned that if the latter issue isn’t rectified then additional downgrades into sub-investment grade are possible.

But it was the agency’s action on the subordinated debt that was more significant, Nolan points out.

Moody’s cut its rating on the bonds by six notches to Caa1 from Ba1, citing the increasing risk that subordinated bondholders will be forced to share some of the burden of the bailout.

Specifically, the agency highlighted three factors that have led to the risk rising:

(i) the need for further capital injections as the non-NAMA loan book deteriorates;

(ii) the thin capitalization of the Asset Recovery Bank (ARB), which is likely to be wound down; and

(iii) the longer maturities of the subordinated debt in comparison to the senior debt.

The rating action was another blow for the beleaguered bank. But its spreads were little moved as the market had already priced in the downgrade.

In fact, Anglo Irish senior CDS trades with an implied rating of B, according to Markit Implied Ratings.

“It should be noted that it is not the most liquid of credits, having a Markit Liquidity Score of between 2 and 3 in the past few months. The government is expected to provide clarification this week on its plans for Anglo Irish and the overall cost of the bailout. A report in a Sunday newspaper suggested that some of Anglo Irish’s debt will be tendered at a discount to par or swapped for equity in the ARB,” Gavan Nolan points out.

  • Markit iTraxx Europe 113.25bp (+0.5), Markit iTraxx Crossover 516bp (-0.5)
  • Markit iTraxx SovX Western Europe 157.5bp (+2.5)
  • Markit iTraxx Senior Financials 144bp (+1.5)
  • Sovereigns – Greece 785bp (-10), Spain 226bp (+3), Portugal 405bp (+12), Italy 195bp (+5), Ireland 470bp (+8), Belgium 137bp (-3)
  • BP 187bp (-2)
  • AIB  – Snr 625bp (+5), Sub 1000bp (+28), Bank of Ireland – Snr 520bp (+11), Sub 815bp (+19), Anglo Irish Bank – Snr 985bp (+25), Sub 47 points upfront

Something wrong with this picture?

CDS curve for Southwest Airline.

* Southwest Airlines (LUV) will buy Airtran in a $1.4 billion cash and stock deal in a consolidation of low cost air carriers.

* CDS curve today is seeing a roughly 5 bps parallel shift in response to the transaction in early trading.

* Stocks on both LUV and Airtran were higher. Stocks on other air carriers (JetBlue, US Airways and Delta) were higher as well on merger speculation.

Markit Research & News

Related by The Swapper:

Irish Sovereign CDS Spread Exceeds 500 Basis Points

Ireland And Portugal Close To Collapse

Irish CDS Spreads Back To Record High After Bond Sale

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Irish Sovereign CDS Spread Exceeds 500 Basis Points

The Irish sovereign CDS spread exceeded 500 basis points Thursday – for the first time in recorded history. The future of Anglo Irish Bank is at the heart of Ireland‘s problems. The state has poured money into the failed bank but investors are concerned that the eventual cost of a bailout will be too great for the country to bear.

“The government have strenuously denied that senior debt will be restructured. Subordinated debt, on the other hand, is another question.”

Gavan Nolan


Risky assets experienced a difficult session as a combination of mixed economic data and heightened concerns over Ireland fueled negative sentiment as the price of insuring the nations debt went through the roof.

Ireland is the new black sheep of the sovereign CDS world, and its spreads exceeded 500bp Thursday for the first time on record.

“Given that it was only last Friday when the 400bp level was breached, the rapid widening in spreads reflects the severity of Ireland’s credit deterioration as perceived by the market. The prospect of a medium-term IMF/EU intervention – as mooted in a research report last week – triggered the latest bout of widening, and a well-received bond auction on Tuesday failed to provide the boost many expected,” Markit Financial Information Service writes in its daily update.

The future of Anglo Irish Bank is at the heart of Ireland’s problems.

The state has poured funds into the failed bank but investors are concerned that the eventual cost of the bailout will be too great for the country to bear.

Gavan Nolan

“Rumours are circulating abound that bondholders will be forced to share some of the pain. The government have strenuously denied that senior debt will be restructured. Subordinated debt, on the other hand, is another question,” vice president Gavan Nolan at Markit Credit Research writes.

Finance Minister Brian Lenihan has been less than emphatic in denying that subordinated bondholders will not get all of their money back.

The bank’s CDS spreads reflect the bifurcation in senior and subordinated debt.

The latter CDS are now trading around 47 points upfront (equivalent to over 2000bp using 20% recovery rate), indicating high probability of default.

AIB and Bank of Ireland were also significantly wider today, rumours of a bank default in the morning session not helping.

Ireland’s Q2 GDP figures only added to the negative sentiment.

Ireland’s economy shrank by 1.2% in the second quarter, confounding expectations of a small rise.

On a GNP basis – a more useful measure because of the high level of multinational corporate activity – the economy shrank by 0.3%.

“The disappointing figures raise doubts about Ireland’s severe austerity policies, and will no doubt influence the political discourse in the UK,” Nolan says.

More Bad News

Yet more bad news came in the form of Markit PMIs.

The Markit Flash Eurozone PMI slumped to 53.8 in August, a seven-month low and far worse than expected.

The leading indicator is pointing towards a slowing of growth in the region over the third-quarter.

Weaker than expected US initial jobless claims figures completed the negative economic picture.

“But there was glimmer of hope for optimists with the US existing homes sales figures, which were better than expected. Housing starts earlier this week also beat expectations, and the data helped spreads come off their wides. Even banks, which were underperforming throughout the day, improved during the afternoon,” Gavan Nolan points out.

The Markit iTraxx Senior Financials index was 3.5bp wider at 148.5bp after being as wide as 155.5bp earlier in the day.

Sovereigns also staged a comeback, the Markit iTraxx SovX Western Europe finishing the day tighter.

UPDATE:

  • Markit iTraxx Europe 116.5bp (+2.5), Markit iTraxx Crossover 528bp (+9)
  • Markit iTraxx SovX Western Europe 160bp (-1)
  • Markit iTraxx Senior Financials 148.5bp (+3.5)
  • Sovereigns – Greece 797bp (-4), Spain 225bp (-11), Portugal 405bp (+14), Italy 195bp (-2), Ireland 475bp (+15), Belgium 141bp (-4), Hungary 347bp (0)
  • BP 198bp (+1)
  • AIB  – Snr 615bp (+31), Sub 965bp (+35), Bank of Ireland – Snr 525bp (+33), Sub 815bp (+31), Anglo Irish Bank – Snr 16 points upfront, Sub 47 points upfront

Irish CDS Spreds Back To Record High After Bond Sale

Markit Launch Liquidity Metrics for Euro Loans

Survey: Market Surprised By Negative Derivative Perception

Bank Funding Crunch Deepens as Swap Rates Soar

Spec-Grade Liquidity Worsens

Killing My CDS Softly

Living In A Derivative World

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Ireland And Portugal Close To Collapse(Update)

Portugal only managed to sell EUR 750 million in bonds at yesterdays auction – at the bottom of its indicative range – and, like Ireland, was forced to pay much higher yields than its previous auctions. Today the Irish CDS spread exceeded 500bp for the first time in recorded history.

“It is becoming clear that Ireland and Portugal are perceived by investors as the most vulnerable to a Greece-style collapse in confidence.”

Gavan Nolan

Credit underperformed equity yesterday in another session dominated by sovereigns. After the Irish government‘s bond auction on Tuesday – deemed a success at the time – Portugal followed up on Wednesday with its own debt sale.

Again, the consensus was that the auction was a strong one, with the sovereign achieving high bid-to cover ratios of 3.5 (2014 bond) and 4.9 (2020 bond).

But it only managed to sell EUR750 million – at the bottom of its indicative range – and, like Ireland, was forced to pay much higher yields than its previous auctions.

Portugal did see some modest tightening in its CDS spreads but this proved just as ephemeral as Ireland’s rally the day before.

Both countries were significantly wider by the close and Ireland hit a record wide of 465 basis points.

Greece continued to outperform and Spain’s spreads held up relatively well, according to the daily update from Markit Financial Information Service.

“It is becoming clear that Ireland and Portugal are perceived by investors as the most vulnerable to a Greece-style collapse in confidence,” vice president at Markit Credit Research, Gavan Nolan, writes.

Spilling Into The Banking Sector

The weakness of the sovereign has spilled over into the country’s banking sector.

“Perhaps in Ireland’s case the causality should be reversed. Either way, the banks’ spreads have hit their widest levels since March 2009,” Nolan points out.

LATEST:  Irish Sovereign CDS Spread Exceeds 500 Basis Points

Banks were underperforming across the European CDS market, with the Markit iTraxx Senior Financials index 8.5bp wider at 145.5bp.

It should be noted that liquidity does vary among banks.

Irish banks AIB and Bank of Ireland, for example, have Markit Liquidity Scores of 2 and 3 respectively.

Most of the banks in the core euro zone have scores of 1, indicating the highest liquidity.

Prepare For Impact

The markets were also digesting the implications of yesterday’s FOMC statement.

There was a notable change in language that suggests the FED is preparing the way for the next stage of quantitative easing, possibly as soon as November.

The statement made clear that the FED is aware of the risk of deflation, and is prepared to use unconventional measures to counter this.

This implies that if inflation is persistently below target in the months ahead then the FED will ease policy.

“Whether this tool will be effective in promoting growth is open to question,” Gavan Nolan notes.

Read the full post at The Swapper:

Related by the Econotwist:

Irish CDS Spreds Back To Record High After Bond Sale

Markit Launch Liquidity Metrics for Euro Loans

Survey: Market Surprised By Negative Derivative Perception

Bank Funding Crunch Deepens as Swap Rates Soar

Spec-Grade Liquidity Worsens

Killing My CDS Softly

Living In A Derivative World

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