THE FINANCIAL stability of the US railroad companies was the main preoccupation of the earliest credit rating agencies, with the system of rating the debt issued by corporations and companies using letters such as AAA dating back to 1909, when John Moody published Moody’s Analyses of Railroad Investments.

Since then, myriad convoluted combinations of letters, numbers, plus and minus signs and outlook assessments have evolved. Moody’s alone has 32 ratings systems for different categories of debt, while Standard Poor’s, Fitch and other agencies all have slightly varying systems for telling their institutional clients just how risky it would be to place their money into a particular entity.

So what does a Baa3/D- rating with a “negative” outlook actually mean?

First of all, the D- part relates to Irish Nationwide’s bank financial strength rating (BFSR).

Moody’s BSFR ratings scale runs from A to E, with A-rated banks judged to possess “superior intrinsic financial strength” and E-rated said to possess “very modest intrinsic financial strength, with a higher likelihood of periodic outside support or an eventual need for outside assistance”.

D- is the second lowest rating possible. According to Moody’s, a D- rated bank may be limited by one or more of the following factors: a weak business franchise; financial fundamentals that are deficient in one or more respects; or an unpredictable and unstable operating environment.

The Baa3 rating assigned to Irish Nationwide’s long-term bank deposit rating and senior debt rating is one step above “speculative grade” ratings, which are often described as having “junk” status.

A “negative” outlook signals that, in Moody’s opinion, any future change in Irish Nationwide’s credit rating will be a further downgrade rather than an upgrade.

Credit rating agencies have come under fire in recent years for failing to warn investors of the risky nature of particular corporations and investment vehicles.

However, a downgrade from a rating agency can in itself trigger the collapse of a financial institution, as borrowing costs for the bank increase and investors take heed of the warning and call in all their debts at once, forcing the bank to go under. This phenomenon is sometimes referred to as a “death spiral”.