WRAPUP 1-Rating agency warnings deepen Irish crisis

* Dublin reiterates to honour Anglo Irish senior debt

* Anglo refinancing could top 35 bln eur, rating risk -S&P

* Fitch tells Reuters rating at risk, no action imminent

* Irish bond spreads vs Bunds hit euro lifetime high

By Andras Gergely

DUBLIN, Sept 28 (BestGrowthStock) – Two more credit rating agencies
warned Ireland on Tuesday that its debt is at risk of further
downgrades, triggering another leap in borrowing costs and
heaping pressure on the government to bring forward its budget.

Ireland is battling to convince investors it can afford to
shore up its banking sector and cut the biggest budget deficit
in the European Union, given its weak economy and growing risks
of a political crisis.

“I cannot pretend that the current rating is totally
secure,” Chris Pryce, a senior analyst with Fitch, which
currently has Ireland at AA- with a stable outlook, told Reuters
in an interview. [ID:nWLA3990]

The government is hoping a final bill for dealing with
nationalised lender Anglo Irish Bank [ANGIB.UL], expected later
this week, will clear up fears that the cost will vastly exceed
a current estimate of 25 billion euros ($34 billion).

But Standard & Poor’s said on Tuesday its estimate Ireland
would have to pour 35 billion euros into Anglo Irish, a figure
heavily criticised by local policymakers, looked increasingly
realistic and any amount beyond that could trigger rating


For graphic on Europe’s struggle with debt:



Coming a day after credit agency peer Moody’s slashed its
ratings on Anglo Irish’s lower-grade debt, S&P’s fresh warning
sent Irish credit premiums and the cost of insuring Irish debt
from default to new highs. [ID:LDE68R0C8] [ID:nLDE68R0GY]

The news also drove the premiums investors demand to hold
bonds from other economies on the euro zone periphery to new

The OECD’s chief economist told Reuters he did not see
Ireland heading towards a Greek-style crisis. [ID:nTOE68R06Q]

Ireland’s rising borrowing costs are unsustainable over the
medium term and are putting mounting pressure on Prime Minister
Brian Cowen as he heads into a new parliamentary term on
Wednesday, with his coalition and deficit-cutting mandate shaky.

Some analysts have said Cowen needs to speed up the budget

“The costs are rising because of policy inaction on behalf
of the incumbent government,” said Ciaran O’Hagan, bond
strategist with Societe Generale.

“The French budget is being published tomorrow, the Irish
budget is being published in December. They are going to give a
pre-budget statement in the second half of October, that’s a
month away.”

Cowen, who recently shook off calls to resign after a boozy
night out, was blasted by Irish tabloids on Tuesday after U.S.
chatshow host Jay Leno ridiculed him as a “drunken moron”.


Fitch’s Pryce said the government’s wafer-thin parliamentary
majority, which could fall from four to two, was a worry but
Cowen still had time to reassure investors with the final bill
for Anglo and tough budget measures.

“Further downgrades may be avoided,” he said. “The Irish
government has at least one more shot in its bow.”

But O’Hagan said the credibility of the Anglo bill was
dependent on the outlook for the Irish housing market, where
prices are in some cases half their peak and still dropping.

“Even if the government does come out with a number, the
only thing that will make it believable is if there is some sort
of prospect of stability for the housing market.”

The 25 billion euros of aid so far earmarked for Anglo Irish
would already push Ireland’s 2010 budget deficit to around 25
percent of gross domestic product, compared with an EU limit of
3 percent that Dublin aims to reach by 2014.

Dublin has said the budget blow-out is a one-off due to
European accounting rules and the impact of the Anglo bill would
be minimised by spreading the cost over at least a decade.

But investors remain unconvinced about the plan to wind down
Anglo via a split into a “funding bank” and an “asset recovery
bank”, and the cost of insuring Irish sovereign debt against
default hit a record high of 519 basis points. [ID:nLDE68R0GY]

The premium investors demand to hold 10-year Irish
government bonds rather than euro zone benchmark German Bunds
(IE10YT=TWEB: )(DE10YT=TWEB: ) widened by five basis points on
Tuesday to hit a euro lifetime high at 475 bps before easing
back to 468 bps. [ID:nLDE68R0W8]

On Dublin’s main thoroughfare O’Connell Street,
recession-weary city residents were equally downbeat.

“It feels a bit doom and gloom again, like things are
getting out of control,” said Darragh, 23, a recently graduated
engineering student who is looking for work.

Ratings agency Moody’s downgraded Anglo Irish’s unsecured
senior debt on Monday, citing a small residual risk the
government might not support this debt. [ID:nLDE68Q1I6]

A finance ministry spokesman said on Tuesday Ireland will
honour its obligations to senior bondholders.

Analysts expect the government to buy back Anglo’s 2.4
billion euros in subordinated bonds at a discount. The paper has
been trading at a deep discount in the secondary market.
(Writing by Carmel Crimmins; Editing by Ruth Pitchford)

WRAPUP 1-Rating agency warnings deepen Irish crisis