UPDATE 3-Moody's upbeat on Ireland's 'bad bank' launch

By Andras Gergely

DUBLIN, April 1 (Reuters) - Ratings firm Moody's said it was closer to determining Ireland's rating as the decisions by the 'bad bank' launched this week had made clearer the course the government's debt will take.

Moody's said the National Asset Management Agency (NAMA), which was launched this week, would still greatly increase state liabilities and its impact on the government's rating was a 'balancing act' that would depend on economic recovery.

'We have interpreted the NAMA idea rather favourably since it was first floated,' said Moody's, which rates Ireland AA1 with negative outlook.

'As the government's debt trajectory has now become clearer with the decisions on NAMA transfers, Moody's is closer to determining at what level in the Aa rating range the government of Ireland's ratings are likely to settle,' it said.

NAMA this week started buying property loans from banks at a higher discount than expected and the central bank has told participants they had to find a total of up to 32 billion euros of capital to make up for the writedowns.

Central bank Governor Patrick Honohan lowered the estimated amount NAMA would pay for property loans, saying in an op-ed piece in the Financial Times on Thursday it would spend between 40 billion euros and 50 billion euros ($54-$67 billion), which is below the government's initial 54 billion euro projection.

'The pricing has been designed with the objective of enabling NAMA to recover its substantial outlays -- between 40 billion and 50 billion euros -- over the coming decade,' Honohan said.

NAMA is buying the first tranche of loans with a book value of 16 billion euros at a 47 percent average discount, far higher than the 30 percent overall discount projected in September.

At the lower end of the range Honohan gave, NAMA would be paying less than half the book value of the 81 billion euros in assets it is taking over.

The bigger capital shortfalls arising from higher discounts will ultimately hit government coffers, which are under close scrutiny as Dublin attempts to cut its large budget deficit.

The state will have to supply the extra capital needed to nationalised Anglo Irish Bank, two building societies and possibly to Allied Irish Banks. Bank of Ireland is potentially the only participant that will avoid majority state ownership.



INVESTIGATION

Honohan reiterated the banks would sell 'non-core' assets and issue new shares, and the government's preference shares from an earlier bailout would be converted into ordinary equity.

As in the case of bailed-out British banks Lloyds and Royal Bank of Scotland, Irish banks will be managed with a view to get the best value for the taxpayer when the equity stakes are sold back into the private sector, he said.

The government has injected 12 billion euros into nationalised Anglo Irish Bank, and has said another 10 billion could be needed. Honohan said it was likely the additional 10 billion euros would be necessary.

'This is a truly shocking figure, albeit one that is affordable for the state,' he said, adding that most of the damage to Ireland's financial sector and reputation had been done by Anglo Irish Bank alone.

The public's anger over the size of the injections has been growing over the last several weeks and minsters said on Thursday they understood people's reaction.

'We are all appalled by what has happened at Anglo Irish Bank,' Deputy Prime Minister Mary Coughlan told parliament.

Anglo Irish Bank on Wednesday posted a 12.7 billion euro loss, the largest in Irish corporate history, with analysts worried by customer deposits falling more than half in the 15 months to December.

Police arrested Sean FitzPatrick, the former chairman of the bank, last month as part of a fraud investigation into events preceding the bank's nationalisation but released him without charge after a day of questioning.

'I have full confidence in the garda (police) investigation that has been taking place, where there has been considerable progress, it has been most focused and vigorous,' Coughlan said.

($1=.7414 Euro)

(Editing by Simon Jessop, Sharon Lindores and Karen Foster) Keywords: IRELAND BANKS/HONOHAN ([e-mail]; [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.