Banks using ECB funds to buy bonds
Lenders trying to create illusion of demand on international markets
Irish banks are using billions of euro from the European Central Bank (ECB) to buy up Irish government debt, the Sunday Independent can reveal.
It has emerged that the banks were "active" in a recent Irish government bond sale of about €1bn, and it was confirmed yesterday the repossession of Irish bonds at the ECB has occurred.
Irish banks are using ECB funds to "create the illusion" of demand on the international markets.
Finance Minister Brian Lenihan in the coming weeks will embark on an international tour, in an attempt to encourage foreign purchases of Ireland's debt, as well as attempt to correct "many of the lies" being told about Ireland's financial turmoil.
It was confirmed yesterday that, in line with Jean Claude Trichet's wishes, Irish banks holding Irish government bonds have been flocking to the ECB.
The process of the ECB channelling funds through the banks is aimed at preventing a bond sale from failing, and therefore allowing the government to claims its policies are "working well", according to government sources.
Mr Lenihan, at the behest of the NTMA, is keen to sell Ireland's message abroad, both in terms of the purchasing of the country's debt and explaining how Ireland's bad bank Nama will work.
Last week, Allied Irish Banks (AIB) raised €1bn in a surprise bond sale as it took advantage of buoyant demand for government-backed debt in the financial markets.
It was the second time the country's largest bank has tapped the bond market since the €440bn state guarantee last September.
It is due to be paid back on September 16, 2010, two weeks before the scheme expires. AIB raised €2bn from a similar bond sale last November.
Market sources said that AIB had initially set out to raise €250m this time round as it made an "opportunistic" foray into the market.
"There was very strong demand for government and government-backed paper after Greece got a €7.5bn bond away," said one source. Demand for the three-year Greek bond reached as high as €13.5bn.
Then Bank of Ireland followed AIB by unexpectedly tapping the bond markets for money.
The bank raised €1bn in a surprise bond sale, just days after AIB raised the same amount in a separate sale.
- DANIEL McCONNELL Chief Reporter
