With Anglo about to report its results, last Sunday’s newspapers contained stories that the government was considering not honouring coupon payments on Anglo’s Tier 1 perpetual bonds. In light of that, it is interesting to note the following story (from Wednesday’s FT):
Bradford & Bingley, the nationalised mortgage bank, quietly issued three statements after the market had closed on Tuesday, informing holders of three classes of notes that they would not now be getting their next due interest payment.
The FT notes that the market value of these bonds collapsed on this news. Anglo’s perpetual bonds have been trading at about 15% of par value lately.
Update: Anglo results released here along with a statement from the Minister of Finance. The loss of €4.1 billion essentially equates to all of its equity capital (see page 23 of the report’s PDF file.) And from the Minister’s statement:
the Government has decided, subject to EU approval, to provide up to €4 billion of capital to Anglo. The bank is also in a position to generate further capital of its own by buying back certain outstanding subordinated loans from bondholders at a significant discount to par value. This exercise will generate profit and additional capital for the bank.
See page 50 of the report’s PDF file for details on Anglo’s subordinated debt, which has a book value of €4.9 billion. About €2.1 billion of these bonds are dated, and thus covered by the guarantee up to September of next year (though the earliest maturity is 2014). The remaining €2.8 billion are undated and are not covered by the guarantee.