Tuesday 23 January 2018

IMF backs move to burn €3bn Anglo loans

But Noonan will have tougher task getting ECB on our side

Siobhan Creaton in Washington

The International Monetary Fund last night backed a government plan not to repay more than €3.5bn worth of loans owed to investors by failed banks Anglo Irish and Irish Nationwide.

But Finance Minister Michael Noonan faces a huge battle to get agreement on the radical move from the European Central Bank.

Failure to repay the loans would mark the first time since the economic crisis began that a eurozone bank defaulted on what was regarded as the safest type of investment.

Any default on the payment of these loans would save the taxpayer billions but the ECB opposes the move because it is concerned all European banks would be seen as riskier if any bank in Europe fails to pay these so-called senior bondholders.

The clear signal that the Government is determined not to repay the loans last night rattled financial markets.

Coupled with the deepening crisis in Greece, it was blamed for a sharp fall in the euro in New York trading.

Acting IMF boss John Lipsky told Mr Noonan the IMF would support this controversial move by Ireland.

The Finance Minister said he would try to persuade the ECB that imposing losses on Anglo Irish bondholders would not trigger contagion because it was no longer a real bank.

"I said, 'Look, it's no longer a bank. Anglo is now merged with Irish Nationwide. It's a warehouse for impaired assets. It is not a real bank," he said.

"You can't put your money on deposit. . . You can't get a loan from Anglo Irish."

He told Mr Lipsky Anglo needed the IMF's help dealing with senior bondholders because the Government didn't think the Irish taxpayer should have to redeem "a speculative investment".

"I don't think it should be redeemed and we have raised it as a very strong issue at the very highest level," he said.

The IMF boss will be attending an emergency Ecofin meeting in Luxembourg on Sunday and Monday. Mr Noonan said Ireland's problem in relation to forcing senior bondholders to accept losses lay within Europe.

"Our difficulty on this on previous occasions was never with the IMF. The difficulty is what attitude the European Central Bank may take. It's hard to predict that," he said.

The scale of the losses discussed with Mr Lipsky was with regard to bondholders with about €3.1bn of Anglo and about €600m of Irish Nationwide debt.

The minister said they discussed losses "in or around that kind of money".

Yesterday's move is a sea-change in how the Government has so far been dealing with the senior bondholders in these two failed institutions.

It has imposed losses on junior bondholders in all six banks. However, this can be seen as an attempt to fulfil an election promise that lenders to the failed banks would have to carry some of the costs ie, the burning of the bondholders.

The so-called junior lenders already face losses of 80-90pc but the discount or haircut on these senior bonds would be significantly less.

Mr Noonan would not discuss the size of the likely discount or haircut it would impose on the senior lenders but agreed it would be substantial.

"Well I would hope so. There are other participants. We will have allies in the debate and we will have people who will see it differently. So we'll see how it plays out."

Irish Independent

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