Senior bondholders will not be forced to shoulder any of burden
Published 29/11/2010 | 05:00
SENIOR bondholders in the main Irish banks escaped any losses on their investments when last night's €85bn rescue package for Ireland was confirmed.
Despite suggestions late last week that senior bondholders, who hold a state guarantee, could have their investments written down in value, the banking package announced by the Government included no reference to this group taking a hit.
But junior bondholders, who rank behind senior bondholders in the event of a liquidation, are facing losses, although the scale of the losses has not been disclosed.
Speaking in Brussels, Finance Minister Brian Lenihan said: "First of all, junior bondholders will participate; that's the policy of the Government and they will be expected to bear steep losses and make a contribution toward this."
Mr Lenihan said during talks with the European authorities that it was clear there was no support for asking senior bondholders to take any pain.
"As far as senior bondholders are concerned, I've always made it clear that as long as we were in the markets, senior debt was fundamental for Ireland."
A deal where junior bondholders take a hit is on the cards. This has already happened at Anglo Irish Bank and Irish Nationwide and Taoiseach Brian Cowen seemed to hint it might be extended to other banks.
The Central Bank and the NTMA are likely to decide on whether junior bondholders have to take a hit, a process known as 'burden sharing'.
At the weekend, opposition politicians and trade unions called for all bondholders to make a contribution to the cost of rescuing the banks. But Mr Cowen said this could destabilise the financial system and there were legal reasons making such an approach impossible.
He refused to comment on suggestions the Government wanted to hit bondholders in the rescue but this was shot down by the ECB.
Most of the recently issued bank bonds are covered by a government guarantee scheme, known as the Eligible Liabilities Guarantee, an "irrevocable" guarantee that anyone holding these investments will get repaid.
Analysts who spoke to the Irish Independent last night were surprised there was not more detail about junior bondholders in the announcement.
However, they said it was always unthinkable that senior bondholders would be included. Any moves against that group would disrupt the fundraising plans of banks all over Europe, they said.