Denmark Haircutting Senior Bonds

I’m not going to comment on this story but, needless to say, it will be of some interest to many of our readers.

Update: On The Frontline just now, in response to questions from Pat Kenny on the Danish bond haircuts and to the figure quoted of €20 billion in unguaranteed bank bonds (previously mentioned by Sinn Fein’s Pearse Doherty), Brian Lenihan said the following: “We put the €20 billion that Pearse is talking about on the table in the EU-IMF negotiations. The ECB ruled it out. But it’s still there in debate, it’s still there in discussion. And we’re pressing for a substantial discount there and for burden sharing.”

28 replies on “Denmark Haircutting Senior Bonds”

“I have always felt that Ireland a second Denmark was no bad ideal for our reformers to set before them”

(Horace Plunkett, 1908)

This latest instalment just rubs salt into the insult of our policy towards bondholders that has so much in common with Field Marshal Douglas Haig’s sacrifice strategy on WW1 battlefields.

Remember this nugget from the EU in October, 2010 which coincided with a certain Russian billionnaire getting uppity at the prospect of not being paid full value for his subordinated debt at INBS?

“burden-sharing is ensured by excluding shareholders and subordinated debt holders of the failed bank from any benefit from the aid”

Precident – Lennihan should understand that concept.

@ Karl & Jagdip Singh

Any idea why Ireland did not utilise this mechanism when it became available?

If I recall correctly, PK asked him if a different approach which protected AIB and BOI but did not include Anglo might have been better. Our MOF ducked that.


I had an email from a Danish friend today – he was complaining about the 2 billion krona [divide by 7] that Danish Gov had put into it recently and the ‘waste’ that this entailed. Pragmatic people these Danes …..

He cannot understand the Irish ‘blanket guarantee’ ….

@Ordinary man

You are way out of line – step into the real world and repeat it …. hope you have health insurance ….

The tragic absurdity of our situation makes further substantive comment impossible.

Fianna Kafka.


bit of thread ..

Banco Santander Offers $5.8 Billion for Polish Bank

Allied Irish owns 70 percent of Zachodni, one of the largest banks in the country. The deal with Santander, which will give Allied Irish nearly 3.1 billion euros ($4.22 billion), was announced in early September, and includes a sale of Allied’s 50 percent stake in BZ WBK AIB Asset Management.


Aw go-wan go-wan – gizza few bob – gizza few bob …

Gilding the Lily! Our Brian.
Last October the senior bonds were not €20 billion. They were far more than that. Indeed ‘technical’ discussions were gojng on for a few months. My understanding is that almost €50 billion worth of bonds matured and were paid back in full between August 2010 and January 2011. That would be 20 +50= 70 billion in my arithmetic that would have been available to put on the table last August when ‘technical discussion’ started.

Now Brian, a little more ‘clarity’ please.

Is Lenihan an undercover Eurosceptic? He does seem remarkably eager to portray European officials as overbearing gits with no regard at all for Irish interests.

@ Karl.

Re: “Brian Lenihan said the following: “We put the €20 billion that Pearse is talking about on the table in the EU-IMF negotiations.”

So if Lenihan is willing to whack the snr bank bonds, why did he guarantee existing bonds in the original 2008 guarantee? i.e. after Sept ’08 he’s saying it’s impossible to touch snr bank bonds, but in Nov ’10 he’s willing to burn them. Would he now agree that his guarantee was disastrous?

@ B Eoin B,

Now that a European country has done the unthinkable, will you be buying gold or baked beans 😉

It’s good to see BL saying publicly what we’ve all known for a long time.

The notion that a central bank should take it upon itself to dictate the terms on which the burdens arising from a failed banking system should be shared out among various interest groups is abhorrent: this is a quintessentially political matter, and is for our elected representatives to decide. We need to reassert the primacy of politics, not just for our own sake, but for the sake of the European project as a whole — things are getting completely out of control here.

It is pretty clear that FF and FG are now ad idem on how to address the EU/IMF.

It is also fairly clear that FF sought the concessions which FG/Lab say they will seek in a renegotiation. Therefore, it is reasonable that FF/Fg/Lab would all pursue the same policy vis-a-vis the EU/IMF after the election if in power.

The only outlier is SF. They have proven their wilingness for their people to take 40 years of pain and suffering on other issues so their threats would have to be taken seriously. However, they aren’t great at arithmetic so they would probably turn our “international collaborators” against us.

This is a very odd story. It says senior bondholders “could” face a haircut. So it is by no means obvious that they will.

Secondly, it doesn’t say the amount of creditors not covered by Denmark’s guarantee. I would presume that the vast bulk of the creditors are covered. If you buy a bond which is covered by the guarantee, the guarantee does not cease just because the bond matures after the expiration of the guarantee. You are still covered. You are only not covered if you invested before or after the period of the guarantee.

Thirdly, just because the assets equal 59% of liabilities does not mean that there will be a 41% haircut for senior debt. Presumably subordinated debt will have close to a 100% haircut, thereby reducing the exposure of senior debt.

Fourthly, Denmark is not part of the euro zone and therefore was not dependent on the ECB for liquidity. The commentator says that any haircut imposed by Ireland on senior debt would have to be done with the approval of the ECB.

Fifthly, the amounts involved are far less than even Irish Nationwide here.

It looks like the story is not as relevant to Ireland as first appears. But it will be interesting to follow it and see if senior debt ACTUALLY suffers a haircut.

@ Ahura

not a fan of baked beans to be honest, marrowfat peas for me!

In all seriousness, it is an important event, though the context needs to be understood as well, as does the fact that this is the first occasion of such a creditor loss almost 3 and a half years after Northern Rock hit the wall.

Amagerbank appears to have had a roughly 1% market share of all loans in Denmark, and the Danes have had a policy of each bank bailout being a bit more aggressive than the last (this is the 8th bank to have been taken over in Denmark, but there was only mild losses in the previous ones). While total unsecured creditor losses will amount to around €670mio, senior debt will only be taking around €100mio of these losses, with depositors taking the bulk of the rest, and for the most part being made whole by the deposit protection scheme outside of this. So its not exactly a massive loss being shared with the market in the overall context.

@ John Martin

you are technically right – the government is essentially putting a 59% ‘floor’ on the senior debtholders stake. They may get even more back after liquidation, but apparently the losses at the bank are severe enough that this cannot yet be assumed, and will take a year or so to figure out.

For clarity, the figures for the bank are as follows:

DKK 13.2bn in total creditor losses:

2.6bn subdebt
5.6bn government guaranteed bonds (so made whole)
0.7bn senior debt
5.6bn in other unsecured senior debt (depositors mainly, and mainly made whole by deposit protection schemes)

So of 13.2bn DKK in liquidation losses, only around 3.3-3.8bn (guesstimate for the upper end) DKK will actually be passed onto creditors.


“If I recall correctly, PK asked him if a different approach which protected AIB and BOI but did not include Anglo might have been better. Our MOF ducked that.”

I wonder why?


Lenny just announced a sale of Anglo and Irish N’wide assets and deposits, on foot of a direction order obtained this morning. No suggestion as to whether this will affect senior debt, but chances of them being involved have to have risen as a result of recent comments and events. The sale of the banks’ assets also seems to suggests that a quick winddown is now being looked at, rather than long drawn out affair, so such a restucturing obviously places senior debt much more at risk.

re SF

However, they aren’t great at arithmetic

The Europeans must have long since started to wonder about Irish arithmetic skills in general. Just as the Irish have long since started to wonder about ‘Liberte, egalite, fraternite’, particularly the egalite and fraternite bits.

Which gets me back to what €20 billion Lenihan was talking about that was on the table during IMF/ ECB negotiations. Where at that time were the rest of the unmatured bank bonds? Under the table? Beats me!

@ Eoin B,

Yes, it is a small bank but it appears that the Danish objective is that taxpayers don’t pay private bank losses. This suggests the Danes see their resolution scheme as scalable.

In most European states, standing behind senior bank debt isn’t a costly position as their bankers weren’t as bonkers as ours. So it’s easy for them to ponificate; but it’s disingenuous as their not currently on the hook. For example, if the French government had a banking system with the same level of losses as Ireland’s, I don’t believe for one minute that they would leave senior bonds untouched.

Even with our massive budget deficit, I wouldn’t object too much to supporting snr bank debt if it cost 10bn. I think it’s complete madness to cover investors’ bank losses and sink the country.


So Anglo and INBS are in for a windfall from the sale of the deposits? Happy days!
I agree about the senior debt. Few nervous investors will be calling their lawyers today looking at this new legislation.

@ Zhou

‘The only outlier is SF. They have proven their wilingness for their people to take 40 years of pain and suffering on other issues so their threats would have to be taken seriously.’

This is an economics site I believe and ‘their people’ vote them in continously so maybe they don’t see it like you.

Can we keep the ‘long rifle’ history to a minimum, please.

‘However, they aren’t great at arithmetic so they would probably turn our “international collaborators” against us.’

You don’t think that has happened already with the politically penal interest rates and forcing the government to back the banks and bondholders?

@ Frank

Did John Cleese write that?

You have to laugh the whole thing is F***’n nuts.

@Mr. Bond

Would you have more details on the nature of the Danish depositor protection scheme?

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