Bank of Ireland have released details of their capital raising plans. The fraction of government ownership of the bank will depend upon how many subordinated bondholders take equity instead of an alternative cash offer. Various scenarios are presented but it seems pretty likely that the bank will end up in majority state ownership. So we’re likely to have nationalised all our domestic banks. We await the long-predicted frogs and locusts.
Category: Banking Crisis
Today’s Sunday Independent appears to provide the answer to the question I posed on Tuesday about the government’s position on Anglo bondholders. Despite Brian Hayes stating firmly on April 2 (go here and click on the April 2nd edition of Saturday View, about 56 minutes in) that the government’s position was that haircuts should apply to Anglo senior bonds, the Independent reports that the Department of Finance has confirmed that Anglo’s senior bondholders will be repaid in full.
This is a good time to point people in the direction of NAMAWineLake’s very useful post from Friday detailing all the outstanding bonds of the Irish banks by maturity. November 2nd promises to be a great day for those international hedge fund investors who chose to buy some of the $1 billion senior unsecured Anglo bond first issued in November 2006.
FT Alphaville continue to be unimpressed with the Irish government’s over-turning of the capital structure of the Irish banks: haircutting subdebt holders while protecting preference shares.
The Central Bank of Ireland has released an addendum to its Financial Measures Programme report covering loan losses at Anglo and INBS. It concludes the loan losses estimates that were produced last September are still satisfactory.
What does this mean for the remaining Anglo bondholders (€200 million paid out on last Friday)? The government’s policy on this issue is a little unclear to me at this point. The Irish Times reported in April
the head of financial regulation Matthew Elderfield said losses may be imposed on senior bondholders at Anglo Irish Bank and Irish Nationwide Building Society if the cost of the two failed institutions rises above the current €34 billion bill.
This wording also suggests the converse—that without evidence of higher losses than €34 billion, senior bondholders would be repaid in full. However, I doubt if policy on this issue is being set by Mr. Elderfield. In the week after the stress test announcements, government politicians continued to maintain that they wanted to see burden sharing with Anglo and INBS bondholders. For instance, listen to junior minister Brian Hayes discussing the issue here on the April 2nd edition of Saturday View (56 minutes in).
There isn’t really any need to base such a decision on whether the Central Bank announces combined losses of more than €34 billion. An amended version of the Credit Institutions bill could be introduced that allows the Minister to apply haircuts to all bonds issued by banks that required enormous support from the state, and perhaps this is what government politicians have in mind when they say they are still pushing for burden sharing.
Anyway, there has been no official response to this release from the Department of Finance, who have instead preferred to issue press releases on the subdebt buybacks proposed by BoI, EBS and ILP. My guess is that the government is hoping this issue will just fade away but, if asked, they will still claim that Anglo senior debt shouldn’t be paid out on but that they’re still “discussing the issue with their European partners”.
As a purely political matter, I’d guess that if and when Ireland gets a lower rate on its EU loans, that may prove to be the moment that they admit they had to give up on haircuts for Anglo bonds. Investors who bought these bonds at steep discounts over the past year (because so many people assumed the government would not pay out on them) will have obtained a fantastic rate of return.
The Central Bank has released the Money and Banking data for the end of April (summary here.)
Looking at the key table 4.2 for the balance sheet of the guaranteed domestic banks, we see some relatively good news. Domestic private sector deposits rose a little in April while the decline in non-resident deposits slowed considerably. This confirms various statements from Michael Noonan and others that the situation with deposits improved after the March 31 stress test announcements. Of course, the situation with falling supplies of credit looks as grim as ever.