It is now pretty clear that the government and Anglo management are shaping up to do a buyback deal on Anglo’s outstanding €2.5 billion in subordinated debt after the original CIFS guarantee expires at the end of the month.
Here’s my question. Given that
(a) The terms of these securities allow for the possibility of them not being paid back if the bank is insolvent (this is why banks get to count these securities as part of their regulatory capital).
(b) None of this debt matures until 2014 at the earliest (see page 56 of Anglo’s interim report).
(c) These bonds will no longer be covered by a state guarantee.
why would we do this? Why not let the bonds sit as an obligation of the Asset Recovery Bank, let it go about its business of recovering value from assets, and then let the next government make a decision in 2014 as to whether we want to put in taxpayer funds to pay off these bonds?
Those of you who want to comment that you think a bond buyback is a good idea might help clarify things a bit by explaining what type of deal you would offer (i.e. how much of our money you’d give the hedge funds and other distressed debt outfits that now own these bonds.)