Lenihan warned of dangers in renegotiating with Anglo lenders
Published 27/09/2010 | 05:00
OFFICIALS are still warning Finance Minister Brian Lenihan on the dangers of any attempt to re-negotiate terms with lenders to Anglo Irish Bank -- who could have a call on the bank's assets if they are not repaid.
The officials fear that even talking to holders of "senior debt", who are among the first to be entitled to their money back in the event of a bank failure, could increase speculation about a default -- where guaranteed debts are not repaid.
However, the Government is expected to approve a deal with holders of junior debt, who could lose everything if Anglo was wound down with only its own assets to pay its debts. They are already getting as little as 20 cent in the euro by selling Anglo junior debt on the market.
Yesterday, opposition politicians reacted to a report in 'The Sunday Times' on negotiation plans by saying the Government was embarked on a U-turn in its guarantee of lenders who hold Anglo Irish bonds.
The report said Mr Lenihan would sanction talks with senior bondholders who hold €4bn of the €14bn in senior Anglo debt and whose guarantee expires this week.
Fine Gael finance spokesman Michael Noonan said the reported move was "an embarrassing U-turn on the attacks Fianna Fail has made on Fine Gael for proposing these exact measures to lessen the taxpayers' exposure to the cost of winding down Anglo".
The report noted Mr Lenihan's comments to the Dail finance committee last week. "I am not in a position today to announce what the precise policy will be in relation to them on the expiry of the guarantee, but a clear statement will be made in that regard at that stage," the Finance Minister said.
Yesterday, official sources drew attention to another part of Mr Lenihan's testimony.
"It's unthinkable that Ireland would default on senior debt or that Ireland's banks would default on senior debt. Ireland is not prepared to be some kind of social experiment for bank default," he said.
Negotiations would not be a default, but there are fears they could add to market bets on an eventual default, which have helped drive yields on 10-year bonds to 6.5pc.
The Central Bank and the ECB are understood to be wary about renegotiating terms with senior bondholders. They are now Anglo's biggest creditors with deposits of around €30bn.
If they are to be repaid, along with other depositors, the taxpayer will still face huge losses, even if bondholders were not repaid in full.