Wednesday 17 January 2018

Government orders halt to bank prospectuses in bond offerings

Emmet Oliver Deputy Business Editor

THE Department of Finance has written to the guaranteed banks, telling them not to publish any prospectuses when they issue fresh guaranteed bonds into the market.

The department has instructed the banks not to publish a prospectus when they issue guaranteed bonds under the eligible liabilities guarantee (ELG) scheme. Bond prospectuses usually contain hundreds of pages of information for investors, although the financial data is usually historical.

The department said last night there was no obligation on banks to publish a prospectus when issuing under the ELG. A spokesman said the instruction to the banks would also have a major cost-saving impact for them.

"The Department of Finance has issued a direction to participating institutions in relation to the permitted contents of any offering materials relating to debt securities guaranteed under the ELG scheme,'' the department said in a note to investors and depositors.

The Irish banks are currently in the middle of a major funding period as they try to roll over up to €26bn of bonds, although a portion of this was pre-funded earlier this year.

The banks can use collateral and obtain funds from the European Central Bank, with Davy estimating that Irish banks have €83bn of collateral available for this purpose.

Debt renewals

One of the biggest debt renewals faces Anglo Irish Bank, which has over €7bn of debts coming due during the month.

The ELG scheme started at the end of last year and is subject to ongoing, six-month approvals by the European Commission. The next review takes place at Christmas.

The ELG is in addition to the blanket guarantee agreed on September 29, 2008.

One of the problems for the Irish banks is their credit ratings are closely tied to those of the sovereign and Ireland is now a AA- rated sovereign by Standard & Poor's, for instance.

The ELG scheme covers a range of bank liabilities, from certificates of deposit, to commercial paper to bonds to unsecured debt.

The entire scheme has to be compliant with EU state aid rules.

Liabilities guaranteed under the scheme also do not require any capital to be put against them, giving banks a major advantage in relation to risk-weighted assets.

The banks must pay a fee to the Finance Minister for using the ELG scheme.

The fees are calculated based ECB rules.

Banks must also indemnify the Finance Minister for any costs and expenses incurred by the minister in the operation of the whole ELG scheme.

Irish Independent

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