Wednesday 13 December 2017

Anglo cost may exceed €35bn -- S&P

Anglo Irish Bank’s bailout may cost the Government more than €35bn, Standard & Poor’s credit analyst Trevor Cullinan said, exceeding the rating company’s previous estimate.

“Estimates which were previously strongly against our €35bn now seem to be coming in line with that recapitalisation cost,” Cullinan said in an interview broadcast on RTE Radio today.

“So the Government’s kind of Plan B with Anglo means this €35bn could even be exceeded.”

The financial regulator is due this week to release an estimate for recapitalising the state-owned lender as it’s split into a deposit bank and an asset-recovery unit.

Irish bonds dropped today, pushing the extra yield that investors demand to hold the country’s 10-year debt over German bunds to a record.

“The sell-off seems to be triggered by the S&P remarks,” said Fergal O’Leary, a director at Dublin-based Glas Securities, which specialises in fixed-income markets.

“S&P’s previous estimate of €35bn was at the upper end of market expectations. Any suggestion that this could be raised is a concern.”

S&P lowered Ireland’s credit rating to ‘AA-’ on August 24, warning of further possible downgrades.

The ratings company said yesterday it doesn’t expect the Government to default on its debts. Anglo won’t need more than €29bn, two people with knowledge of the matter said last week.

If the €35bn estimate is exceeded, “there potentially could be further downward rating actions from Standard & Poor’s,” said Cullinan.


The premium investors charge to hold Irish 10-year debt over the German equivalent, Europe’s benchmark, rose to 446 basis points today from 430 yesterday.

Ireland isn’t near a “tipping point” Taoiseach Brian Cowen said today in Dublin, responding to a question on Irish bond spreads.

Anglo’s senior debt was yesterday cut to the lowest investment grade rating by Moody’s Investors Service, which said it may reduce the rating to junk unless the Government guarantees bondholders against losses.

Anglo’s subordinated debt, guaranteed by the Government until September 29, was downgraded to ‘Caa1’ from ‘Ba1.’


The Government appears to “remain resolute that there will be no renegotiation” with Anglo’s senior bondholders, Goodbody Stockbrokers said in a note to clients today.

The cost of credit-default swaps to insure the senior debt of Anglo Irish rose 24.5 basis points today to a record 960 basis points, according to data provider CMA.

The contracts have more than doubled since July, CMA prices show. Credit-default swaps on Government debt rose as much as 31 basis points to 519, according to CMA.

“It’s all about getting clarity on Anglo at the moment,” said O’Leary at Glas.


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