Tuesday 20 February 2018

Senior bondholders won't share Anglo debt burden

Brendan Keenan and Maeve Dineen

THE Government will not ask senior bondholders to share the burden of Anglo's massive debts with taxpayers, the Irish Independent has learned.

This emerged last night after intense debate in government circles as to whether such a deal could be done with those who hold the most secure form of debt in the bank -- known as senior bondholders.

But concerns that any move not to pay in full would damage the country's credit rating -- and even the standing of the wider eurozone system -- won the day.

The Government has always insisted that senior bondholders have the same legal rights as depositors. Ministers believe it would be impossible to negotiate even a voluntary reduction of debt because bondholders would want depositors to share the loss.

On Thursday evening the governor of the Central Bank and the Financial Regulator will give their opinion on the scale of losses at Anglo, based on a comprehensive trawl by the National Asset Management Agency (NAMA).

Last night, they were still working on the final total. It is now expected that they will give two figures for losses at the bank. The lower will be based on losses on Anglo loans still to be moved to NAMA being similar to those already transferred; the higher one on a "worst case" scenario where losses are greater.

Anglo may need as much as €7bn of additional capital in a worst-case scenario, according to reports.

Financial markets are not convinced that the State can carry the burden of both the deficit on the public finances and the costs of winding down Anglo in an orderly fashion.

Thursday's figure is intended to reassure markets, but opposition politicians and other government critics are likely to zero in on the higher figure.

The Government remains determined that there will be no default or re-negotiation on senior Irish bank bonds even where they are not guaranteed by the State. An offer to buy back €2.4bn of junior debt for around €500m is likely to be made when the debt comes out of guarantee tomorrow.

"Two hundred US banks have failed and not a single senior bondholder lost out," an experienced observer said last night.

Holders of junior "subordinated" debt receive a better interest rate but would receive little or nothing if a bank went into liquidation.


Their Anglo loans are valued in the market at just 20c in the euro.

Credit-rating agency Moody's yesterday upped the possibility of some loss to senior lenders by applying different ratings to Anglo deposits and senior bonds.Moody's Investors Service yesterday downgraded Anglo Irish's junior debt by six steps and cut the senior debt by three steps.

It said that when Anglo was split and deposits moved into a holding bank, there would be a greater risk that bondholders of the bad bank would not be paid in full.

"While Moody's considers the likelihood of the Government not supporting this debt to be very small, this risk has been reflected in the three-notch downgrade," the agency said.

"It's all about whether Ireland can afford the bailout of Anglo Irish," said London-based banking analyst Tom Jenkins of Jeffries International.

"There are also the other banks that need cash and all the wider political and economic issues the country has."

Irish Independent

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