S&P Cuts Ireland (IRE, AIB, CRH)

Standard & Poor’s may not have the same clout it did during the first rounds of debt ratings cuts in Europe after missing the mortgage and debt bubble in America, but the international ratings still count.  The information that was the basis for today’s call was mostly known, but S&P downgraded Ireland after the U.S. markets closed for trading today.  We are watching the reactions in ADRs of Allied Irish Banks plc (NYSE: AIB), The Bank of Ireland (NYSE: IRE), and building materials maker CRH plc (NYSE: CRH).

S&P is realizing that the cost to support the financial sector is much higher than its original expectations.  The old “AA” rating is now “AA-” and unfortunately this is not the end of the negativity.  S&P kept its negative outlook, leaving the door open to further downgrading ahead.  The ‘A-1+’ rating covering short-term obligations was affirmed and the transfer and convertibility assessment remains “AAA” for all European Union members.

The negative outlook is there in case the costs of supporting the financial sector continues to rise or if other conditions would arise that weaken the government’s ability to meet its financial objectives.  The financial downgrade is not just on sovereign dent.  It pertains to National Asset Management Agency debt as well as unsecured debt ratings on government-backed securities of Irish banks.

S&P says the support for the financial sector will help foster a gradual recovery but one which will also be slow.  The country’s cost basis is now being put at 90 billion euros rather than 80 billion euros.

Allied Irish Banks plc (NYSE: AIB) was down 2.8% to $2.08 already today and the stock was down almost 1% more to $2.06 in the after-hours session.  This touches the same 52-week low of $2.06.

The Bank of Ireland (NYSE: IRE) closed down 3.5% at $3.86 in regular trading and the after-hours reaction has this one down 2% at $3.78.  Its 52-week low does not come into play unless it hits or goes under $3.10 per ADR.

Building materials maker CRH plc (NYSE: CRH) closed down 15% today at $15.25 and it hit a new 52-week low of $14.76 after a weak US housing figure came regarding existing home sales.  Its shares do not appear to be trading in the after-hours session.

JON C. OGG