S&P Downgrades Ireland on High Bank Costs

Standard & Poor's lowered its sovereign credit rating on Ireland late Tuesday to reflect the impact of higher than previously anticipated costs to support the country's banks.
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NEW YORK (

TheStreet

) -- Standard & Poor's lowered its sovereign credit rating on Ireland to 'AA-' from 'AA' late Monday, citing an escalation in the projected cost to the country's government to prop up its financial companies.

"The downgrade reflects our opinion that the rising budgetary cost of supporting the Irish financial sector will further weaken the government's fiscal flexibility over the medium term," said credit analyst Trevor Cullinan in the statement released by the rating agency announcing the move

S&P, which also affirmed its 'A-1+' short-term rating on Ireland, said it now estimates the cost to the Irish government of recapitalizing financial institutions will be between 45 billion and 50 billion euros, up from a prior estimate of between 30 billion and 35 billion euros.

The agency's outlook for the sovereign credit rating is negative, reflecting a view that the rating "could be lowered again if--as a result of its support for the financial sector or due to a more sluggish economic recovery--the government's fiscal performance improves more slowly than we currently assume," Cullinan said.

S&P added that, factoring in the recent announcement of new capital injections for

Anglo Irish Bank Corp. Ltd.

, it now expects Ireland's net general government debt "will rise toward 113% of GDP in 2012."

"This is more than 1.5x the median for the average of eurozone sovereigns, and well above the debt burdens we project for similarly rated eurozone sovereigns such as Belgium (98%; Kingdom of; AA+/Stable/A-1+) and Spain (65%; Kingdom of; AA/Negative/A-1+)," the agency noted.

According to

Reuters

, the Euro was already falling against the dollar in trading in Asia following the news of S&P's action on Ireland.

--

Written by Michael Baron in New York.

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