S&P Cuts Ireland; Financial Potato Famine (IRE, AIB, IRL, ELN)

It is not very frequent that you see an English-speaking country take a sovereign credit ratings agency downgrade.  That would  indicate the government is one step farther away from being able to repay its debt.  It has happened in Eastern Europe and selectively in the European Union, but today a sovereign credit rating cut from Standard & Poor’s made its way to Ireland.

Standard & Poor’s Ratings Services downgraded the nation of Ireland’s “AAA” sovereign credit rating.  The cut is down one notch to “AA+” and the outlook is “negative,” which signals that the review continues as a developing situation that could lead to more downgrade(s).

The cuts are over concerns about a widening budget deficit and the possible need for the government to take more steps to stabilize its troubled banking system.  You can’t call the Irish scenario the worst in Europe, but it has been hit hard.

It does not appear that any quick fixes are coming either.  S&P noted that this situation may take years of sustained effort on a greater scale than what the country currently has budgeted.  S&P also expects Ireland’s economy to perform worse than that of the European Union as a whole.  It noted that this was for a 5-year period as well,and noted that the debt may peak at 70% or more of GDP in that same period.

We have already seen S&P cut the country’s banking risk assessment, and that was not the first downgrade.

The Governor and Company of The Bank of Ireland (NYSE: IRE) is down almost 17% at $2.30 today’ 52-week trading range is $0.66 to $63.47.

Allied Irish Banks plc (NYSE: AIB) is down 15% at $1.47; 52-week range is $0.72 to $45.92.

The New Ireland Fund, Inc. (NYSE: IRL) is the closed-end fund that trades here in the U.S. and its shares are down 2.5% at $3.98; 52-week range is $3.22 to $20.80.

Elan Corp. plc (NYSE: ELN), Ireland’s big drug delivery stock (and Biogen-Idec partner) is down only 2.7% at $6.40 today.

JON C. OGG
March 30, 2009