Anglo Irish Bank Bailout Shock to System, ECB Council Member Honohan Says
Ireland’s bailout of Anglo Irish Bank Corp. is a “shock to the system,” European Central Bank Governing Council member Patrick Honohan said.
The 20 billion-euro ($26 billion) to 25 billion-euro bailout of the Dublin-based lender, which was nationalized in 2009, is a “manageable sum,” Honohan, head of Ireland’s central bank, told a conference in Hong Kong today.
Concerns over the total cost of the bailout led to a surge in Irish borrowing costs last week. The European Commission last week gave Ireland permission to pump as much as 24.5 billion euros into Anglo, more than the 22 billion euros that Finance Minister Brian Lenihan previously said the lender may need. The government nationalized Anglo and bailed out other lenders as the economy suffered the worst recession in any developed country since the Great Depression.
The premium investors demand to hold Irish 10-year debt rather than the German benchmark widened 10 basis points to 303 basis points today, bringing it close to the euro-era intraday record of 316 points reached on May 7.
Ireland’s treasury agency is scheduled to sell as much as 1.5 billion euros of four- and 10-year bonds in an auction tomorrow. Average yields rose at an auction of 1 billion euros of bills last week.
Bank of Ireland Plc fell as much as 7.9 cents, or 10 percent, to 70.9 cents, and traded at 74.6 cents at 11:10 a.m. in Dublin. Allied Irish Banks Plc declined as much as 5.5 percent to 79.2 cents and traded at 81 cents.
Investor “jitters” on the impact of the bailout on Ireland’s fiscal deficit are misplaced and misjudged, Dublin- based securities firm Davy said in a research note today.
“The optics here are truly appalling, but this is an exercise in Eurostat accounting treatment that has scant bearing on Ireland’s underlying fiscal position,” Donal O’Mahony at Davy said in the note.
To contact the reporters on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net; Louisa Fahy in Dublin at lnesbitt@bloomberg.net
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