Irish

Wednesday 20 August 2014

Elderfield adds to pressure on bondholders at Anglo and INBS

Donal O'Donovan

Published 07/04/2011 | 05:00

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FINANCIAL regulator Matthew Elderfield last night added his voice to the growing number of insiders that say senior creditors of Anglo Irish Bank and Irish Nationwide Building Society (INBS) could be forced to suffer losses.

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The comments came as he told interviewers in London that the banking crisis here could be the world's worst ever.

" Ireland is in a class of its own, I am afraid. It is probably going to set a record for the worst banking crisis, it's at least in the top two or three."

In the interview with the Reuter news agency Mr Elderfield said the Government was committed to protecting senior bondholders of AIB, Bank of Ireland and other banks that it believed had a future. He said he agreed "absolutely" with Finance Minister Michael Noonan that it did not make sense to take action against senior bondholders of "the go-forward banks", such as AIB, Bank of Ireland, EBS and Irish Life and Permanent.

Protecting senior bondholders of those lenders is based on a calculation of the cost over the long term if tackling lenders means not being able to access the debt markets in future, he said. However, he said Ireland may move to impose losses on senior bondholders in the two banks that are slowly being shut down.

It's the latest sign that the new Government sees a clear distinction between banks that have a future and Anglo Irish Bank and INBS, which it wants closed down.

Efforts to impose so-called haircuts on senior lenders to any bank have been opposed by the European Central Bank (ECB) and Mr Elderfield said if a move was made it would be done only after consultation with the ECB.

Denmark, which is not a member of the eurozone, has been the only European Union country to allow the most senior lenders to a failed bank to share some of the losses.

The ECB fears that if bondholders suffer losses on what investors traditionally consider one of the safest financial investments -- the senior debt of regulated banks -- it could spark a new financial crisis within the eurozone. Mr Elderfield signalled there would be an announcement within 10 days about the timetable for capital raisings at the four main banks.

He said that two-thirds of the bank directors in place during the run-up to the crisis have since stood down, but that he was pushing ahead with planned tests to identify and remove unsuitable board members.

He said assessment would be fair but needed to be tough.

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