Ratings agency Standard & Poor’s lowered its credit rating for Ireland by one notch after stress tests of the country’s banks showed a massive capital shortfall, according to The Wall Street Journal. On Friday, the ratings firm downgraded Ireland from A-minus to BBB-plus to move in line with rival Fitch Ratings, although that firm warned that it is considering a downgrade of its own rating for the country. The report from S&P said the outlook for Ireland was stable, and called the tests “robust.” The agency confirmed the the €24 billion in capital shortfall for the country’s banks is at the upper end of the group’s own expectations.
The downgrade leaves Ireland three notches above junk status, and S&P highlighted concern that the country my need to restructure its sovereign debt as a pre-condition to receiving aid from the European Stability Mechanism when it replaces the European Financial Stability Facility in 2012. Fitch also pointed to an economic contraction in the fourth quarter, as well as increased recapitalization costs for banks for its review of its rating for Ireland. Fitch said the government’s debt-to gross domestic product ratio “is likely to rise significantly higher than Fitch’s projection of a peak of 103%.”
