Thursday 12 December 2019

ECB liquidity warning over any effort to force losses on bondholders


Laura Noonan

OFFICIALS from the ECB have warned the Government that any efforts to force losses on senior bondholders at Anglo Irish Bank and Irish Nationwide could lead to the withdrawal of €50bn of central bank liquidity for the two institutions.

The warning ups the stakes in the ECB's efforts to prevent forced losses on the collapsed banks' senior lenders, since the Government has no obvious alternative source of funding to keep Anglo and Nationwide afloat over their 10-year wind-down.

But the force of the threat was downplayed by some well-placed sources who pointed out that there was "no law against" the ECB providing funding to banks just because they did not honour all outstanding senior bonds.


A spokesman for the Department of Finance declined to comment, but said recent media statements from Finance Minister Michael Noonan had "clearly set out that we would not endanger the very important support of the ECB".

In those statements, Mr Noonan said the Government would raise the issue of Anglo and Nationwide's €3.5bn worth of senior unguaranteed bonds with the ECB in the autumn.

It is understood, however, that the senior bondholder issue surfaced in recent days as part of the review mission as officials from the ECB, the European Commission and the IMF pored over Ireland's financial progress.

The ECB has consistently argued that the backlash of refusing to repay senior bondholders would be detrimental because it would raise the cost of funding for banks in Ireland and across Europe as extra risk was priced in.

In recent days, the ECB is also believed to have voiced the view that it would be difficult for the central bank to continue funding Anglo and Nationwide should the institutions fail to honour senior bonds, since the banks would effectively be in default.

Asked about the latest talks, a spokesman for the Department of Finance said his office did not "comment on speculation surrounding detailed discussions with the external partners".

"The position remains as set out by Mr Noonan last month that the issue will be raised with the external partners in the autumn," he added. "The minister set out that Ireland would not act unilaterally as we would not endanger the very important support of the ECB."

Anglo alone was relying on €45bn of central bank funding at the end of December and is believed to have drawn down more since then, while Nationwide has also drawn down billions of euro from the ECB.

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