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Anglo Irish Bank Subordinated Credit Swaps Rise After Good, Bad Bank Split
Credit-default swaps tied to Anglo Irish Bank Corp.’s subordinated bonds rose, according to data provider CMA.
Swaps protecting the riskier, subordinated debt of the nationalized lender climbed 43 basis points to 1,780 as of 4 p.m. in London, while contracts on its senior notes fell 13 basis points to 763, CMA prices show. Credit swaps on European government bonds rose, while contracts linked to the region’s corporate debt declined.
Anglo Irish Chief Financial Officer Maarten van Eden said Sept. 8 that the bank had asked regulators for approval to buy back subordinated debt. The same day, Ireland Finance Minister Brian Lenihan said the lender will be divided into so-called good and bad banks after losing 20 billion euros ($25 billion) in two years as property loans soured in the recession.
“In our opinion the recovery for subordinated bondholders is bound to be limited,” analysts including Jeroen van den Broek at ING Bank NV in Amsterdam wrote in a note to clients yesterday.
The Markit iTraxx Crossover Index of credit-default swaps on 50 mostly junk-rated European companies fell 5.7 basis points to 477.2, the lowest level in a month and little changed in the past week, according to Markit Group Ltd. The cost of insuring financial company debt declined, with the Markit iTraxx Financial Index on the senior debt of 25 banks and insurers falling 6 basis points to 129.5 and the subordinated measure dropping 8 basis points to 193, JPMorgan Chase & Co. prices show.
Default swaps to protect Ireland’s government debt rose 9 basis points to 385, according to CMA.
‘Pretty Good Estimate’
Mike Aynsley, Anglo Irish’s chief executive officer, said today that 25 billion euros is a “pretty good estimate” of the total bailout cost for the bank.
“There will be some adjustments to that,” he said in an interview on Bloomberg Television’s “The Pulse” with Andrea Catherwood. “It’s not possible to entirely predict the exact numbers. But we feel that we’re really coming to the end of the process now and we’re not very far away.”
Ireland’s government has already pumped 22.9 billion euros into Anglo Irish, while Standard & Poor’s said last month the cost may rise to 35 billion euros, which the bank has disputed.
The cost of insuring other European sovereign bonds also increased on speculation more governments will be forced to bail out their banking systems.
Credit swaps linked to Greece’s bonds added 4 basis points to 893, swaps tied to Spanish debt climbed 2 basis points to 230, Italy rose 3 basis points to 206 and Portugal increased 5 basis points to 339, CMA prices show.
Credit-default swaps generally fall when credit quality improves and rise when it deteriorates. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements, and a basis point on a swap protecting 10 million euros of debt for five years is equivalent to 1,000 euros a year.
To contact the reporter on this story: Kate Haywood in London at khaywood@bloomberg.net
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