Anglo SubDebt Buyback Offer Announced

Anglo Irish Bank have announced buyback offers for their subordinated bonds. The holders of the €1.5 billion in dated subordinated notes have been offered 20c on the euro, so this will cost the bank €300 million. The holders of the undated perpetual preferred securities (about €700 million outstanding according to page 56 of Anglo’s interim report) are being offered 5c on the euro, at a cost of about €35 million.

It appears that those signing up for the offers also have to vote to give the bank “the right to redeem all, but not some only, of the Existing Notes of each Series at an amount equal to €0.01 per €1,000.” In other words, if a majority of the bondholders acccept the deals on offer, then those who don’t accept will get essentially nothing.

It is disappointing that there has been no statement explaining this decision on the Department of Finance website. With €335 million of taxpayer funds being offered, the public should get a full explanation of why this is money well spent.

87 replies on “Anglo SubDebt Buyback Offer Announced”

@ Karl,

Under Accrued Interest :

“On the relevant Settlement Date, the Bank will pay, or procure that there is paid, to a Holder whose Existing Notes are
accepted for exchange pursuant to the Exchange Offers a euro amount in cash (rounded to the nearest €0.01, with half a
euro cent being rounded upwards) equal to accrued and unpaid interest on such Existing Notes up to (but excluding) the
relevant Settlement Date (less, in the case of the 2014 Notes and 2016 Notes, any New Notes Accrued Interest as
defined in the Consent and Exchange Offer Memorandum). See “The Exchange Offers – Accrued Interest” in the
Consent and Exchange Offers Memorandum.”

_____________

A link to “The Exchange Offers – Accrued Interest” would be useful as the “(less, in the case of….” throws me

Is this away of forcing subbies into a deal without implementing a resolution scheme?

One wonders what law or what provisions in the subordinated debt contracts allow for a majority of a class of creditors to compromise all creditors’ claims in the absence of examinership/resolution. I am guessing this has to be in the relevant debt instrument for the relevant series. If so then it is a wonder it was not mentioned in relation to previous buy-backs.

@zhou_enlai,

Good question. I don’t think they can. They can make an offer and make spooky sounds that a resolution scheme is on the way.

If the government were to allocate just a few million euro into bribing those responsible into accepting these offers, it would save a huge amount of money for the state. Evan at a few tens of millions it would still pay off and would probably work besides.

To clarify my first post. Interest payments were suspended on certain bonds last year. Does the offer include cash payment of unpaid coupons?

“It appears that those signing up for the offers also have to vote to give the bank “the right to redeem all, but not some only, of the Existing Notes of each Series at an amount equal to €0.01 per €1,000.” In other words, if a majority of the bondholders acccept the deals on offer, then those who don’t accept will get essentially nothing.”

I think that interpretation is incorrect.

I think it means that if you hold €10m you have to put up the whole €10m. You can’t hold back five and “have a second bite of the cherry”.

It is a once only offer.

To suggest that a property owner can force another property owner to surrender property rights at less than full value would surely be unconstitutional.

@Greg
“To suggest that a property owner can force another property owner to surrender property rights at less than full value would surely be unconstitutional.”
Hmmm. Eircom shares anyone? I voted against the sale to take it private. I was outvoted. I got the ‘value’ of the share offer. Despite the fact that my shareholding was ‘worth’ more to me than that; I believed the long-term economic value was higher, a fact borne out by the refloat price 😉

hoganmahew,

Not the same thing I would suggest.

Shareholders agree that their individual property rights are abrogated to the class. They know that they must act as a class or they are powerless. That is a shareholder with 1% could refuse to pass a resolution on, say, a dividend.

I could be wrong but I think bondholders are not bound in the same way and I doubt that the terms of the bond issues would have allowed for “majority” rule. It would surely undermine the value of the bond.

@ Hoggie/Greg/Ahura

bondholder terms and conditions can be changed, a simple look at the T&C verify’s this. Only question is what the required majority is (still trying to figure this out). To be frank, this plan by Anglo/Govt is actually seriously smart. Talking to some guys who own some small holdings there, and they’re seriously impressed (in a p1ssed off way) how they were caught out – no legislative change (which would never be “certain”), a market “friendly” mechanism, pricing below current market, and a basic conclusion that the govt may have gotten one-up on them. No offence, but if you can’t see the innovativeness here, i have to question your impartiality.

Bond. Eoin Bond

“No offence, but if you can’t see the innovativeness here, i have to question your impartiality.”

No offence taken old bean.

So we can do the same to the Seniors then?

@ Greg

its game theory. You have to have a stick to hit them with if they don’t “vote” to go with this plan. The stick in this case would be eventual legislation (and the fact that at this stage no part of the financial system cares about subs). You cant enact legislation against the seniors without hitting the deposits. Havent we been through this before?

Bond. Eoin Bond

“Havent we been through this before?”

But did you not just say that this was innovative?

“No offence, but if you can’t see the innovativeness here, i have to question your impartiality.”

So this is new.

If you are correct, it changes the legal position of bondholders with respect to depositors.

They no longer rank pari passu.

The bondholders, if you are correct, have a special relationship amongst themselves which now (innovatively) distinguishes them from depositors.

I am of course partial to the interests of the Citizen as you well know.

Game theory has nothing to do with law constitutional, statute or common.

There is of course another law which also is not constitutional, statute or common.

It is the Law of Unintended Consequences.

@ Greg

unfortunately you have it all backwards. The only reason any bondholders would agree to the discounted buyback is if there is a danger of a legislative action that could impose losses on them. This “reason” is then accelerated by the fact that if they are left in the defined minority, they will actually get nothing even if the legislation never comes through in the end. Its a bit like chicken and egg rolled into game theory. The problem with seniors is that legislation can never be brought in seperating their rights from depositors. Thats what i meant by “havent we been through this before”. And yes, we have.

@Eoin
I have to side with Greg on the seniors issue. I suspect there is going to be such a mechanism as an “imaginary liquidation” – one where the liquidation process is followed, but the bank is not actually liquidated. So senior bondholders get to vote in a class as they would in a liquidation whether the accept the liquidator (government’s) offer.

The government then ponies up the difference between what bondholders get and par to make depositors whole, as a sort of DIP finance measure. Thus old Anglo is liquidated and Anglo ARB and DB are born.

Bond. Eoin Bond

No we have not been here before.

You seem to imagine that “game theory” somehow entered the Constitution of this Republic while we weren’t looking.

Be let me be clear. Statute law is and always has been subordinate to the Constitution.

CONSTITUTION OF IRELAND

Enacted by the People 1st July, 1937

Private Property

Article 43

1. 1° The State acknowledges that man, in virtue of his rational being, has the natural right, antecedent to positive law, to the private ownership of external goods.

2° The State accordingly guarantees to pass no law attempting to abolish the right of private ownership or the general right to transfer, bequeath, and inherit property.

No statute or “threat” of statute can override this article. The State has no right to transfer the property of its Citizens.

You say that the Terms and Conditions under which investors purchase bonds (acquire property) allow the State to threaten them with statute.

You may be right.

If you are then the class of bondholder, senior or subordinate, is irrelevant.

“The problem with seniors is that legislation can never be brought in seperating their rights from depositors.”

Why?

You have just made the argument that bondholders are a class of property owners distinct from the body of Citizenry by virtue of their class.

Your argument is self defeating.

You have proven that both seniors and subordinates are different from depositors.

Depositors by definition are not a legal class. They have agreed noting amongst each other.

Bondholders have.

Unless you wish to change you argument?

@ Hoggie

“going to be” or “could, in theory, be” – if there is actually going to be, then you are looking at wiping out senior debt as a funding tool. It will simply cease to be an attractive investment avenue. Think about the knock on effect of this for banks? Ergo, it will not be enacted. (Also, the gains from this are limited – seniors will still actually get large payouts). There are basically no worries about what the knock on effect will be for subs via this method. We need to stop thinking in the theorethical abrstract and accept the reality. I don’t actually understand why people can’t do this.

@ Greg

you’re not listening – we’re not talking about destroying subordinated bondholders right, we’re simply changing how we interpret them. The basic “right” is that they are entitled to a capital return as long as there is enough capital in line with the capital ranking to repay them. The problem is that, as things stand, this cannot be “proved” accept via liquidation. We are simply considering implimenting legislation which allows for this to be “proved” without liquidation. No right are dissolved (the bank is proven to be insovlent), its simply that we get to show the situation without liquidation. For want of better analogy, its a bit like proving murder without ever finding the body – it can be done. By attempting to prove this theory, we are providing a stick to hit them with, so we offer a discounted exchange as an alternative. Via this exchange, we use the bondholders contractual rights, which allow the modification of the bonds, to inflict immediate losses on them. It’s underhand, and a bank that was ever considering issuing sub debt or even just trying to be a going concern into the long term would never consider this course of action, but Anglo doesn’t have to worry about this.

@Eoin
“No right are dissolved (the bank is proven to be insovlent), its simply that we get to show the situation without liquidation”

Why couldn’t the same strategy be adopted with senior bondholders?
With the government giving a guarantee on deposits to make up the gap between the “liquidation value” to 100% of their deposit?

@ DE

1. In theory they could (i believe), but the downside is much more. No senior in the EU has taken a loss, and the EU/ECB seem pretty intent on avoiding it.
2. I assume you’re going to have a pretty significant deposit run as a result of the uncertainty
3. i assume you’re going to have a pretty signifcant deposit run in the other banks as a result of the uncertainty
4. Reckon an Irish bank will ever issue unguaranteed senior again afterwards? It’d affect the ELG as well.
5. Much bigger chance both that for both nominal cash at risk as well as legal/financial potential you’ll end up in court for a long time proving the case. If there’s any doubt, Anglo may end up being either frozen or liquidated, which wont exactly help with the orderly winddown of the bank.

And all this to save 1bn?

Bond. Eoin Bond

“you’re not listening”

Your accuracy is impressive.

I am not listening. I am reading.

“we’re not talking about destroying subordinated bondholders right, we’re simply changing how we interpret them”

When you say “we” I must assume that you are talking on behalf of a class of Citizen (who freely chose to make contract amongst each other and put their property at risk in doing so) of which I am not a member.

“we’re simply changing how we interpret them”

As you say dear boy.

And one could imagine “interpreting” in an “innovative” way the manner in which the Republic sees Senior Bondholders.

Again, let me be clear.

What a private group of Citizens chose to do with their property is their own business. Their right to do what they do is protected by the Constitution.

“The basic “right” is that they are entitled to a capital return as long as there is enough capital in line with the capital ranking to repay them.”

And the difference here between subordinate and senior bondholders is what?

“The problem is that, as things stand, this cannot be “proved” accept via liquidation.”

And the difference here between subordinate and senior bondholders is what?

“We are simply considering implimenting legislation which allows for this to be “proved” without liquidation.”

And the difference here between subordinate and senior bondholders is what?

“No right are dissolved (the bank is proven to be insovlent), its simply that we get to show the situation without liquidation.”

And the difference here between subordinate and senior bondholders is what?

“By attempting to prove this theory, we are providing a stick to hit them with, so we offer a discounted exchange as an alternative.”

And the difference here between subordinate and senior bondholders is what?

“Via this exchange, we use the bondholders contractual rights, which allow the modification of the bonds, to inflict immediate losses on them.”

And the difference here between subordinate and senior bondholders is what?

“It’s underhand, and a bank that was ever considering issuing sub debt or even just trying to be a going concern into the long term would never consider this course of action, but Anglo doesn’t have to worry about this.”

“It’s underhand”

Just not cricket really?

But then the Citizen didn’t mark the crease.

@ DE/Hoggie

think about it this way – all you have to do is prove that the ceiling on sub value is zero. Doesn’t matter what the alleged value is as long as the ceiling is zero. If thats proven, subs cant do anything.

On seniors, however, the value will ALWAYS be something (assuming there’s something left after secured are paid off), so there will ALWAYS be an argument for whether its 50 cents, 60 cents, 70 cents or 80 cents. This means that you could never rule out asset seizing, liquidation, injunctions etc.

Bond. Eoin Bond & Dreaded_Estate

“No senior in the EU has taken a loss, and the EU/ECB seem pretty intent on avoiding it.”

Well Bond. Eoin Bond that is a rather interesting admission.

Do I understand you correctly here?

The ECB is now prepared to wipe out all subordinated on the balance sheets of the banks of Europe?

Is that now ECB policy?

Should Jean Claude not make an announcement?

Subbies are dead.

@Eoin

bondholder terms and conditions can be changed, a simple look at the T&C verify’s this. Only question is what the required majority is (still trying to figure this out).

I have to say I would be surprised if a majority of bondholders of any class could “vote” so as to affect the rights of a minority, but I bow to your experience.

We are simply considering implimenting legislation which allows for this to be “proved” without liquidation. No right are dissolved (the bank is proven to be insovlent), its simply that we get to show the situation without liquidation. For want of better analogy, its a bit like proving murder without ever finding the body – it can be done.

This statement – if legally correct – would appear to apply equally to senior bondholders. If it permissible to prove that a bank is insolvent without having to actually wind up the bank, then it should be possible to extinguish the rights of the bondholders (or at least to confine them to recovering whatever percentage they would recover in an actual liquidation situation). Thereafter, the Government can provide compensation to the deposit holders. Provided this compensation comes from an external source, i.e. not from the assets within the bank, there is no legal impediment to throwing a lifeline to depositors. The pari passu argument only applies to the “pot” of assets within a bank: bondholders and depositors have an equal claim to a share of this pot. There is no wider principle, however, which precludes the Government providing statutory compensation depositors alone.

Bond. Eoin Bond

Quoting self here. Yes I know that’s a bit naughty.

“Should Jean Claude not make an announcement?

Subbies are dead.”

Did Lenihan and Cowen just have another blinding insight like the costless guarantee?

Did they bother to consult with Trichet before they announced it?

Well, I’m going to take a guess here. This time they did.

Trichet thought it was a jolly good idea.

But then Trichet is schooled in the Napoleonic Code.

Now there’s a code of law that can strip you of your property in the time it takes a blade to drop a head in a basket.

Be careful what you wish for.

@ gadge

i’ve never disputed the theory of putting losses on bondholders via the suggestion above, simply the practise and the political will (domestic and EU), as well as the likely negative consequence of this. Any legislation that potentially (note) impairs property rights could be also be potentially unconstitutional, so it may not work, or not to the extent intended. However, the threat of them can have much the same effect in the right circumstances, when focused on the right targets. The right targets and the right method can also reduce the negative consequences. At the risk of repeating myself (not directed at you), this is where multiple analogies like carrot & stick, and chicken & egg come in. Like i said, game theory is a big factor here, there’s very little certainty in any of this. Not noting the difference between trying this on subs and trying this on seniors means you don’t get to fully comprehend whats happening and why.

@Eoin
“On seniors, however, the value will ALWAYS be something (assuming there’s something left after secured are paid off), so there will ALWAYS be an argument for whether its 50 cents, 60 cents, 70 cents or 80 cents. ”
Exactly, that’s why I said an imaginary liquidation. It would have to be at the value set after a liquidation-type imagination event.

Now, given that Anglo’s value is currently -25 bn… how much of a haircut is that?

@ Eoin

I fully appreciate the economic / political difficulties in imposing losses on bondholders, and have always been careful to emphasise that I am only commenting on the potential legal issues.

@Eoin

Thanks for the explanation. Is the ability to change Ts & Cs with majority approval standard in subordinated debt issuances? Does it apply to all Anglo subbie issues or only certain ones?

@ Hoggie

but you could dispute the value of any payout to seniors. ANY payout. It would be far easier to show that subs would be wiped out in full and have zero argument against it (literally crystalised losses may wipe them out without even going into impaired theoretical losses). And you’d have a complete deposit run while that was being argued. It may even be possible for seniors to injunct the assets of the bank, no? Subs are a much more straight forward argument.

@ Zhou

i’ll be honest – today is the first i had seen of it. But i checked the prospectus, and it does indeed have a clause which says that terms can be changed. The problem is, it says the “trust deed” contains the info which details that, and i cant find that anywhere (hopefully have some more info tomorrow). However, spoke with some guys this evening who trade these a lot, and they said there is a provision and they’re just trying to figure out what the exact majority required is. Now, there is also a suggestion that as its under foot of a “threat”, its in a legal grey area, but i dont know how you’d test that in the limited timeframe, especially as, like i said, the government could just bring in legislation further on down the line, which it’d rather not do. Essentially option A for the govt is this route, with the bondholders knowing that there is still an Option B for the govt to go down later if required. Option C would just be an eventual default. With that in mind, they may decide that 20 cents is better than nothing, and they will just have to live with being outflanked on this.

@ DE

“Imagined liquidation” – try to impose losses, bondholders say they are being screwed on this, so they put a freeze on the bank doing anything with the remaining assets of the bank. This would include loans, but also cash balances. Hence, deposits frozen until case cleared up. With this potentially occurring, would you leave your money in there? Hence, ahead of this there is a deposit run, overnight collapse, near term wind down, firesale of assets below their true value, and follow on negative consequences for the other irish banks. Im just saying that seniors could tie the whole thing up for a long time to get a “true value” on the assets. The resolution idea is great for wiping out a class, but less easy for haircutting the same class of creditor as depositors.

@Eoin

1. Why couldn’t we implement a resolution regime before we do this.

2. Couldn’t we transfer deposits (with the equivalent asset backing to another bank) before it happens, with the guarantee that seniors value will be calculated pre this transfer? (But less state intervention so far)

3. In a liquidation what do you think the realistic residual value for depositors and seniors would be?

@ DE

2. carving out deposits is far more difficult than people think, would stink of creditor favouritism. Its usually done in a sudden failure situation, ala the Fed rocking in on Friday afternoon. Pretty much impossible to claim that situation with Anglo right now.

3. BNP did a liquidation valuation (pre sept 30) which included 19bn in promissory notes and saw senior unsecured get 81 cents. Even subtracting the promissory note saw them get 41 cents.

Can i also remind you that there is only 4.2bn of unguaranteed seniors? “Savings” here are limited, event risk is considerable.

@Eoin

I saying we do the we could do the carve out while at the same time agreeing to value Anglo as a whole pre carve.
Bondholders couldn’t really say their property right were being effected in any way.

I’m not sure what world we have moved to where saving €2bn should be ignored. It is still over 6% of the annual tax take.

Bond
Are senior bond holders protected under the deposit insurance system? If they aren’t then we could, in theory at least, wash all bondholders out and compensate depositors under the insurance system.

If that’s true, then there is a difference between senior bond holders and depositors. They have different rights even if, in a straight collapse ( which didn’t occur because bondholders and banks demanded that), senior rank pari pasu

@ Bklyn

deposit insurance is limited to 100k. Beyond that deposits are not insured, so you couldnt compensate them beyond that via that scheme (you could look to do it via other methods though). So there is no difference in their property “rights”, as the assets of the company are not being ringfenced for the bondholders, the deposit insurance is coming externally.

@ All – this is what i am being told is the situation on changing T’s&C’s

“A quorum of bondholders representing two thirds of the notional amount of bonds outstanding is required to be able to vote on the decision to change the bond docs like this. The quorum will constitute those voting either “yes” or electing to vote “no”. Further, 75% (again by notional) of the quorum voting “yes” is required to pass said resolution.”

Weapons, guys, weapons!

The IFSC may also club together to do something.

In the EU, the Irish punch above their weight. If they apply themselves. Clearing matters up in the markets was suggested a long time ago.

It took personnel changes for this to come about. Time for regime change elsewhere?

http://www.angloirishbank.com/Media-Centre/Press_Release_Archive/Consent_Exchange_Proposal_by_Anglo_Irish_Bank_Corporation_Limited_to_the_beneficial_owners_of_its%E2%80%99_EUR_dated_subordinated_securities.pdf

From table one here I only see detailed offer for the €1.7bn or so of dated sub debt.

At the very bottom it says regarding perpetual (undated debt)

“Today, the Bank is also launching a consent solicitation exercise to amend the terms and conditions of all perpetual subordinated securities outstanding in the market of the Bank and its subsidiaries to, inter alia, include a right for the relevant issuer to redeem such securities at a nominal amount.”

Nominal amount?

@ Rob

5 cents payment for the right to wipe out at 0.1 cent per 100 euro.

Technically they are not buying back the debt, just paying for the right to wipe it out. The LT2 is closer to a standard buyback/exchange as it is exchanging for ELG.

Where’s the liquidation?

If a subordinate holder faces a nil return in a liquidation they could, if they had taken out “insurance” via a CDS, collect from the counterparty.

If they are to recieve next to nothing they are entitled to seek a liquidation.

Or are property rights to be thrown under a bus just to save the senior bondholders.

So is every penny of Subordinated debt gone from the bank (all €2.4bn ish) if this deal goes ahead as planned Eoin?

A very good move. Like dealing with sharks. The sharks has a choice here. Get off scot free with a piece of the kill or have a right old tussle for the full kill. Now what would a hungry shark do?

Like all intelligent sharks, the subordinated bondholders will make a splash but every one of them will take the money and run.

For once a real good move. Never thought I would say this.
The New Anglo is biting back.

I ask, because it seems there would be a small amount left over from the dated even if this goes ahead.

Its bizarre, all of a sudden when the govt does something which seems to be pretty sharp and smart (a rarety these days) we have people come out sticking up for the subs “rights”. You couldn’t make this sh2t up…

@ Rob

what dated subdebt do you see not included?

Eoin

I’m not sticking up for subs rights.

I want the seniors treated in the same manner.

If the property rights of subs can be undermined then so can those of seniors.

What’s good for the goose.

Well from Anglo’s report we have a total figure for the dated subs of €1,742m

Now from Anglo’s press release they say they are doing deals for the:
– €325m
– €500m
– €750m

which is a total of €1,575m

Which leaves about €167m of dates not mentioned

Specifically it seems these instruments (again from the interim report):

– US$165m Subordinated Notes Series A 2015
– US$35m Subordinated Notes Series B 2017

@ Greg

i would dispute that the subs rights are being eroded. The government has simply found a method that seems to place enough doubt on the subs capital return such as to incentivise them into accepting the exchange offer. As i said, the government has found a big stick to threaten them with, but which ultimately may never have to be used or tested in court. Its a bit like threatening a dog with a stick and threatening an elephant with one. The dog obeys, the elephant does not.

@ Rob

checked it out – think the USD holders may be a private placement, so literally could be 2 or 3 holders in total, so they’re just going to contact them directly, but on the same terms as the other dated exchanges. It mentions it towards the bottom of the link you provided above.

Eoin

Depends on the dog.

Anyway. The implied threat is liquidation. Or a statute declaring liquidation without actually allowing liquidation.

I stand to be corrected but I very much doubt that the Terms & Conditions of any subordinated debt allow for “quasi legal” liquidation.

As I have said the sub holders may well have CDS protection. Triggering that protection would surely require a credit event.

If the government tries to avoid a credit event by “innovation” the property rights of the sub holders have been made valuless.

If this can be done to the subs then it can be done to the seniors.

By the by. €1bn is chump change.

Okay Eoin. Thanks for your input.

I won’t dwell on it anymore, but it also seems that for the undated (again only going by the specific instruments, dates etc listed that the offer for UNDATED sub debt only ampunts to less than €300m (by my calculations) of the €700m there.

I imagine its a similar situation as you outline above though

Eoin,

I’ve never claimed to be impartial. I’d prefer to see 1.) capitalism function and 2.) minimize losses to taxpayers. I don’t like mickeying about with T&Cs purely to avoid what should be done either through liquidation or a resolution scheme.

It will be interesting to see how this offer evolves. I haven’t seen this type of trick used to force losses on subbies that don’t want to accept the offer. I’m surprised if the ability to impose losses in this fashion exists (or if it exists). Do you have a link to the reference to T&Cs? There are certain aspects of notes that a vote system may be reasonable, but extending it to imposing losses in the absence of a Default Event? People wouldn’t buy bonds if this is an option.

Any idea on the deferred interest? Are they cancelled or is the offer = 20c + unpaid coupons?

@ Joseph Ryan

For once a real good move. Never thought I would say this.
The New Anglo is biting back.
(/blockquote>

New Anglo may indeed be becoming more assertive. I am less convinced that the Government deserves to be lauded for its role in all of this (as some other posters seem to suggest). The fact that two years after the banking crisis began, it has still failed to put in place a special resolution scheme for banks. The most that it can do it to hold the “threat” of possible legislation over the sub bondholders. The result is that a class of bondholders who benefited from a risk premium on their investment stands to recover 20 cent in the euro. Whereas I fully appreciate that the sums recovered by the sub bondholder are relatively small (and that different considerations apply to senior bondholders), it does seem extraordinary that the subbies cannot be wiped out in their entirety. Its all very help to praise the Government for being pragmatic in achieving a very significant write down without having to go to the bother of actually introducing the amending legislation or testing in the courts, but given that the Commission itself appears to be paving the way for debt writedown tools at Community/Union level, the lack of legislative action on the part of the Government is disappointing.

I’ll try that again…

@ Joseph Ryan

For once a real good move. Never thought I would say this.
The New Anglo is biting back.

New Anglo may indeed be becoming more assertive. I am less convinced that the Government deserves to be lauded for its role in all of this (as some other posters seem to suggest). The fact is that two years after the banking crisis began, it has still failed to put in place a special resolution scheme for banks. The most that it can do therefore is to hold the “threat” of possible legislation over the sub bondholders. The result is that a class of bondholders who benefited from a risk premium on their investment stands to recover 20 cent in the euro. Whereas I fully appreciate that the sums recovered by the sub bondholder are relatively small (and that different considerations apply to senior bondholders), it does seem extraordinary that the subbies cannot be wiped out in their entirety. Its all very well to praise the Government for being pragmatic in seemingly achieving a very significant write down (80%) without having to go to the bother of actually introducing the amending legislation or testing in the courts, but given that the Commission itself appears to be paving the way for debt writedown tools at Community/Union level, the lack of legislative action on the part of the Government is disappointing.

@Eoin

So if a majority don’t accept the offer am i right in thinking nothing changes?

Is there any way of knowing what the total outstanding value of CDS is on these bonds? If so, is there any way of even speculating what percentage of these bonds are insured by their holders? Surely these guys won’t vote for the offer.

This could be one of those situations, like the one explained by Gillian Taft in the FT, where the existence of CDS complicates resolving liquidations.

Could a large naked holder of CDS on Anglo proceed to buy up large chunks of Anglo debt and tip the balance away from accepting?

What is happening to the price of Anglo CDS as a result of this?

@Gadge. I was praising the New Anglo only. The government don’t have the bottle for this. They make me “sick to my stomach”.
Yes, it would be nice to wipe out the subbies but it would galvanise the other bondholders. This is a probing attack. It is good move. Now if I were a subbie in AIB or BOI I would shifting these type of bonds fairly sharpish.

If I were a senior bondholder in any of these banks, I would be thinking hard about how long I wanted to hold my investment.

@eoin

“We are simply considering implimenting legislation which allows for this to be “proved” without liquidation. No right are dissolved (the bank is proven to be insovlent), its simply that we get to show the situation without liquidation. For want of better analogy, its a bit like proving murder without ever finding the body – it can be done.”

But how could we do this while simultaneously maintaining the pretense that Anglo is capitalized adequately to hold deposits? How do we, on the one hand, say the bank is solvent, and on the other, say it has capital necessary to hold deposits.

If we simply pass legislation that says in effect, Anglo was insolvent, we bailed it out, now we want to go back on that, and impose losses on bondholders even though it is now solvent, we would be breaking new ground.

I know WaMu bondholders got shafted – losses imposed on seniors and deposit book sold off from under them – but at least they ranked parri passu – we would be shafting subbies while protecting equity – in circumstances where the state owned that equity

christy

They may be trying to damage the sub holders without triggering a CDS call.

Good luck with that.

Either there are property rights or there are not.

@Greg

Well, they can make any offer they want to subbies. If the T&C of the subbies contract allow them to proceed this way then there is no legal issue there, let alone a constitutional one.

The legality of the stick in the background is my concern. Having said that if ever there was a case for the property rights proviso;

“1 The State recognises, however, that the exercise of the rights mentioned in the foregoing provisions of this Article ought, in civil society, to be regulated by the principles of social justice.

2 The State, accordingly, may as occasion requires delimit by law the exercise of the said rights with a view to reconciling their exercise with the exigencies of the common good.”

No right is absolute

christy

I have no problem with the application of Article 43.2.2 against a targeted class of property owner on the grounds of Social Justice.

But social justice would have to be proven.

And if proven, that proof would have to be applied to all bondholders in Anglo and perhaps in other banks.

If it is socially just to impair the property rights of sub holders it must equally be socially just to impair the property rights of seniors.

And, if Allied Irish comes under state ownership the same would apply there.

Oh, also for Irish Nationwide.

christy

“The legality of the stick in the background is my concern.”

I don’t believe there is any legality.

All this amounts to is Anglo/Govt bluffing their hand.

Without a liquidation the sub holders cannot be put in the position of acting as a class.

@ Christy

argument is that absent government intervention, the bank is hopelessly insolvent. Equity already wiped out, subs next. Its pretty straight forward. Gets more difficult when you’re trying to haircut seniors while keeping deposits involved. Also, wamu seniors did not get shafted, and wamu subs actually got out whole. The problem with wamu seniors is that they didnt seem to understand how the structure worked if insolvency occured.

@ greg/ahura

the terms and conditions exist, no link, but they do.

@ all

No offence, but this thread is getting farcical

@all

So we seem to be able to operate a regime which “imagines” a liquidation without all the trauma of such a move.

So let us imagine Anglo is liquidated. Someone can provide accurate figures. I am guesstimating from past bloganalia.

Anglo has 8bn hole. (after allowing for existing promissory notes).

2bn wiped off subbies.

That’s 6bn to be divied up between:

30bn depositors/central banks etc.
25bn guaranteed seniors
5bn unguaranteed seniors

Deduction in the € 10c. We save 500m from the unguaranteed seniors, no point forcing the others to accept this as we have to reimburse them under guarantees or other imperative.

And we would suffer all the knock on reputational effects Eoin alludes to for a mere 500m. In the words of Roy, get over it.

@ BWII

i honestly don’t mean this in an offensive way to people on here, but people who don’t understand this proposal at this stage, why its happening and why its good, will never ever get whats really going on…i actually know holders of these bonds who are happy or impressed that the irish government has acted in this fashion.

From an economical point of view this default or forced restructuring might make sense in the short run. But from a legal point of view its i bit like a disaster, because it endorses blackmailing creditors and disrespects the law.

Also what happens, if only the creditors of some of the Subs (say 2014 & 2017) accept the blackmail and the creditors of the 2016 do not (vote with less then 75%) ?

Eoin

“@ greg/ahura

the terms and conditions exist, no link, but they do.”

Dear god man.

Is there nothing you will not bow to?

Bow to this.

I know that you know that you know that I know that you know that

“the terms and conditions exist, no link, but they do”

So let’s leave out the “link”.

Sweet suffering Jesus nobody needs any link provided by you (the bond “market”).

Let’s stick with “the terms and conditions exist”.

Do they? What are they?

Tell me Eoin. Now that “we” know that you know the terms and conditions of the “bond” (though you cannot provide “link”).

Tell me Eoin, you knowing all, when does the looting end?

Have your masters taken sufficient from Ireland to satisfy their greed?

@ Greg

I suppose you have the excuse that you posted a minute before the witching hour, nonetheless I think Karl should remove it.

@JMcHale. Def not John. I’m considerably confused by these Multipliers.

I take as given what you are asserting about the effect of the Multipliers – but to me I can only envisage them as operating in a real, physical system. That is, they have physical attributes which will ID them and describe their behaviour – whichever way they work.

In essence, I consider that the action of Multipliers, as decribed, violate the Laws of Thermodynamics – but since there is empirical evidence that they can alter output, for given inputs, then they must be activating either another endogenuous source to provide that additional output, or there is some other explanation. It may be that the explanation is so trivial that it is obvious to knowledgable persons such as yourself, but opaque to econ novices like myself!

Its the abstract mathematical modelling that I find off-putting. I need an concrete model to cogitate on! Thanks.

Brian P

http://www.zerohedge.com/article/are-irish-taxpayers-about-bail-out-goldman-peter-sutherland-stealing-his-own-people-give-vam

Derivatives require that ill Irish patients hunt for hospitals to try to care for them.

Derivatives can be used as the solution too? Make money for the state out of the demise of the Vampire Squid? By declaring default six ways to Christmas and then collecting as the Squid gets eaten? Payoff all national, sovereign and bank debt….

Thanks, Suds!

Frank G

It all depends on what is contained in those pages of terms and conditions of the CDS concerned. I imagine it is likely that Bloomberg and BNP know what they are saying unlike Bertie Ahern.

The next massive credit event that collapses banks will be derivative related, but I doubt this is it! Aren’t derivatives fun!

@Eoin Says

so what happens, if the 2016 (2nd meeting) or 2014 (1st meeting) do NOT vote with 3/4 majority in favour of the default-exchange? The call at 0,01 will not be inserted then – right? So whats going to happen then.

Also what will happen, if the 2016 do not vote infavour of allowing the offer of a call to be made (which will be votet for in the 2nd 2016 meeting) ? The votes on the 1.st meeting of the 2016 are not tied to accepting an consenting to the default-exchange offer !?

And why are market prices of the Anglo Irland LT2s (2014/6/7) above the value of the default-exchange offer?

Is the default exchange offer possibly designed to fail on purpuse to point the finger on the Sub Bondholders in an then outright default?

Brian Woods II

“I suppose you have the excuse that you posted a minute before the witching hour, nonetheless I think Karl should remove it.”

I am of course humbled by your mind.

Others are not.

Anglo Irish Creditor Group Plans to Decline Subordinated Debt-Swap Offer

A group of Anglo Irish Bank Corp.’s creditors will decline to participate in a debt swap proposed by the nationalized lender, said Houlihan Lokey, an investment bank that is representing the noteholders.

…

“Anglo Irish is attempting to strong-arm noteholders to vote in favor of the exchange offer by threatening to eliminate minority dissenting noteholders’ rights to repayment of monies loaned by them,” the statement said. The group includes pension-plan money managers, insurers, retail investors and secondary purchasers, and Brown Rudnick LLP is providing it with legal advice, it said.

…

http://www.bloomberg.com/news/2010-10-28/anglo-irish-creditor-group-plans-to-decline-subordinated-debt-swap-offer.html

There is a group (EXchange Investors NV, Orlyplein 85, 1043 DS Amsterdam, Netherlands) already controlling 18,7% of the 2014 LT2s and they are offering a slightly higher consideration (20,2% – cash!) then ANGIRI to get at least the blocking 25% minority.

pointofview

Thank God someone has sense of property rights.

If this shit goes any further we might as well accept Maoism now.

Hi all, I hope you might get behind this. I going to the kilkenny Economics weekend & I’m hoping to get it moving there. In the meantime please help me promote it.
If you don’t agree with the petition or have any feed back I’d love to hear it.

Liam
theliammurphy@gmail.com

I would vote for any political party that abandoned Anglo’s Debt.

The Fianna Fail government took the decision to guarantee Anglo’s Debt without knowing the extent of Anglo’s rogue trading, true size of the debt & total inability to repay it. At the time the total bill was estimated to be €4.25 billion (we are willing to discuss this amount). We’re now facing an estimated €34 billion, 8 times the guarantee promise. The entities that loaned to Anglo were not naive school children. They knowingly lent to Anglo being fully aware of the risk involved with the property bubble in Ireland. We the people did not have a laser or ATM card for Anglo Irish Bank. This was not a people’s bank; this was a cosy cartel for developers. We the people would have never benefited from the Anglo cartel profits, in fact we were negativity affected by these fat cats driving up the price of starter homes, making it near impossible for an average couple to afford a new home.

Why are we the people paying the debt of tycoons that employ specialist accountants to ensure that they themselves pay only 5% tax?

I would vote for any political party that told the lenders to Anglo that your investment was based on risk, and with all risk your investment can rise as well as fall.

http://www.petitiononline.com/No2Anglo/petition.html

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