Category: Banking Crisis

Three Cheers for NAMA?

One interesting aspect of the government’s current approach to promoting its NAMA plan for dealing with the banking crisis is their tendency to interpret everything said by authority figures as being in full support of their chosen approach.

As an example of this, on RTE’s The Week in Politics, Minister Eamon Ryan said the following (about 15.40 in):

The difficult and unpopular decisions that were excoriated by the Labour Party endlessly—you’re bailing out the banks, you’re bailing out the banks—have been described by the International Monetary Fund as the right way forward; has been described by the ESRI as the first time the government is getting it right, as they see it; has been described by the Swedish finance minister who was over last week, who got them through a similar crisis, as exactly the right thing to do.

Continue reading “Three Cheers for NAMA?”

Tribune on Anglo Bonds

Following up on last week’s story about Anglo suspending interest payments on certain bonds, the Sunday Tribune had a nice article by Emmet Oliver that sheds some light on the issues surrounding this decision.  Also in the Tribune, my old friend Jon Ihle reported the feel-good news story of the week about a certain bond investor who’s going to lose out as a result of this decision.

Anglo Stops Payments on Bonds, CDS Implications?

Thanks to Karl D. for the tip-off on this story.  Anglo Irish has announced that it will not be paying coupons on its Tier 1 subordinated bonds and that this decision was required by “The European Commission, as a condition of its approval of the Government’s capitalisation of the Bank of up to €4bn.”  In a related story, the International Swaps and Derivatives Association has decided that a similar non-payment by Bradford and Bingley represents a “credit event” which will trigger CDS insurance.  (Bloomberg story here, official announcement here.)

Presumably, Anglo’s actions will at some point trigger the same decision from the ISDA.  This will mean that those Anglo bondholders holding CDS insurance will receive full payment.  Anglo’s announcement also discusses its “liability management” exercise, in which it is planning to buy back outstanding debt at below par.  Presumably, however, those insured by CDS will no longer be interested in a deal of this sort.  It also makes it likely that much of the debt that Anglo is planning to buy back at a discount will be owned by CDS issuers.

Update: My presumablys were perhaps a bit presumptious.  Commenter Eoin notes below that this is not (yet) a credit event.  I have checked this elsewhere and am informed that the “reference” obligation that defines a credit event for Anglo is indeed a failure to meet Tier 2 obligations.

ECB on banks and public finances

The latest ECB Monthly Bulletin carries an interesting special article on the impact of banking-sector rescue policies on public finances across the euro area: you can read it here.

Public Finances and the Recapitalisation of the Banking Sector

Scott Rankin and Rossa White at Davy Research have a new quantitative analysis on what the banking crisis may cost in terms of (i) total system losses and (ii) re-cap costs (taking into account operating profits, capital ratios desired by govt etc.) and (iii) the % of that re-cap cost that may come from the government. They also look at how much of our long-term funding has been successfully done ytd and estimate the trajectory for government debt.

The paper is available here.