Lenders must scale €24bn 'wall of worry' this September
Ireland's lenders face a massive task refinancing over €24bn of bonds that fall due at the end of the initial guarantee scheme in September -- putting them in direct competition with the State as it seeks to plug a €20bn deficit in the Budget.
The Government will also have to roll over about €7bn of maturing debt this year.
Analysts at the Royal Bank of Canada last year famously dubbed the Irish banks' September debt maturity deadline as the "wall of worry".
Still, the keenly watched premium that Ireland must pay above Germany for 10-year bonds continues to contract, narrowing to a 12-month low yesterday.
Dealers said this was down to debt-market participants cheering news that Finance Minister Brian Lenihan is to remain in office as he begins cancer treatment -- and as they begin tweaking their portfolios for the new year.
"A number of hedge funds and European insurance firms are calling Irish sovereign bonds a 'top tip' for the year, as the recent tough Budget shows the Government is intent on maintaining fiscal discipline," according to one bond trader. But sentiment will be affected by the ability of the country's state-backed banks to roll over billions of euro of debt in September.
Irish Life & Permanent, which has €3bn falling due in September, has begun pre-marketing a $2bn bond issuance, according to market sources.
This will make it the first bank to use the new extended guarantee scheme -- allowing institutions to issue bonds of up to five years in duration.
Pricing of the bond sale could come as early as this week, said one source.
Others such as AIB, BoI and EBS, have issued non-guaranteed bonds in recent months as they begin to pre-finance the massive September maturities and continue to wean themselves off short-term European Central Bank borrowings.
Beleaguered building society Irish Nationwide is, proportionately, by far the most exposed to the September deadline.
It must refinance €3.7bn, according to Bloomberg data -- the equivalent of a third of its loan book.
Anglo Irish Banks needs to repay €5.9bn and the EBS has to find €1.5bn in the same month.
Allied Irish Banks and Bank of Ireland each must refinance €5bn of publicly-issued bonds, according to the data, though they have each raised further billions by way of private placements.
Figures out last week from the Central Bank showed that Irish mortgage lender's reliance on ECB funding dropped 18pc in November to €34bn as wholesale funding markets continued to thaw following the collapse of Lehman Brothers in 2008.
Their dependence had rocketed as high as €72bn last June as the ECB upped its response to the crisis by allowing banks to avail of up to 12-month funds, compared to the normal maximum 90-day limit.
Banks will come under further pressure to reduce their lean on the ECB over the coming months after Frankfurt held its last 12-month auction last month and set its sights on closing off its six-month refinancing operation in March.
However, Merrion Capital analyst Sebastian Orsi said that the €50bn-plus of government-backed bonds lenders were expected to receive for loans bound for the National Asset Management Agency (NAMA) "should help alleviate the re-funding needs for the banks".
He noted that a key significance of NAMA was that it was a massive liquidity event for the banks.