Irish Finance Minister Michael Noonan said senior bondholders should share in the losses of two Irish lenders, placing the government on course for a confrontation with the European Central Bank.
Noonan discussed sharing the cost of rescuing both lenders with senior bondholders in Anglo Irish Bank Corp. and Irish Nationwide Building Society at a meeting with the International Monetary Fund, he said in an interview with Dublin-based broadcaster RTE yesterday.
“We don’t think the Irish taxpayer should redeem what has become speculative investment -- we don’t believe it should be redeemed at par,” Noonan said. He said the IMF “understood our position fully.”
Ireland, which has injected a combined 34.7 billion euros ($49.1 billion) into Anglo Irish and Irish Nationwide over the past two years, is winding down the lenders over a 10-year period. The European Central Bank has opposed any moves to force losses onto senior bank bondholders and Ireland won’t act unilaterally, Deputy Prime Minister Eamon Gilmore said today.
“There is risk that the market will read too much into” Noonan’s comments, said Jim Ryan, a director at Glas Securities, a Dublin-based fixed-income firm. “We don’t think the ECB’s position on burden-sharing of bank bonds is likely to change.”
The ECB rebuffed efforts to raise the issue of burden sharing during last year’s talks on Ireland’s bailout, Micheal Martin, foreign minister in the government which negotiated last year’s international bailout.
The weight of bank debt help propel into an 85 billion euro- bailout last year, as investors shunned Irish securities. The difference in yield between Irish and German 10-year bonds was unchanged at 860 basis points today.
“It remains to be seen if the ECB will go along with this,” Martin, now leader of the country’s biggest opposition party, said in an interview with RTE radio today. “The IMF had a different perspective than the ECB.”
The ECB had no comment, a spokesman said today. Noonan’s interview referred to senior unsecured, unguaranteed investors, a Finance Ministry spokesman confirmed today.
His plan represents a shift away from the government’s earlier policy of making senior bank bondholders whole. The government had previously said it wouldn’t seek to impose losses on senior bondholders unless the two lenders need additional capital. The central bank said last month neither would need further cash injection.
“The current law does not allow for coercive action on senior bonds,” said Cathal O’Leary, head of fixed-income sales at NCB Stockbrokers in Dublin, in a note today. “The only way coercive action can happen is if there is an accelerated wind-up of the bank. This is unlikely given the imminent maturity profile of Anglo’s senior unsecured debt.
Anglo Irish has 3.2 billion euros of senior unguaranteed, unsecured bonds and Irish Nationwide has 601 million euros of the securities, the country’s central bank said April 1. Anglo Irish has a further 2.96 billion euros of additional senior guaranteed securities.
The bonds are trading at “quite a large discount” in the market, Noonan told RTE. “The secondary market is usually the market deciding what the appropriate price is, and that is a guideline for any negotiations.”
Irish Nationwide’s 598 million euros of senior unsecured floating-rate notes plunged 12 cents in the euro to 63 cents, according to Jefferies International Ltd. prices on Bloomberg.
Anglo Irish’s 1.25 billion euros of senior unsecured floating-rate notes due January next year dived 13 cents on the euro to 70 cents, according to Jefferies. The note is the biggest senior unsecured bond the bank still has outstanding.
Anglo Irish Chief Executive Officer Mike Aynsley said in an interview on March 31 that voluntary buy-backs of senior debt shouldn’t be ruled out.
Kenny will hold a press conference today to mark the government’s first 100 days in office, amid opposition claims it is not delivering promised progress. The program for government said the administration may need to amend legislation “to extend the scope of bank liability restructuring to include unsecured, unguaranteed senior bonds.”
His deputy Gilmore said today Anglo Irish and Irish Nationwide are in a “different” position to those lenders.
Ireland is “not a supplicant state,” he said, adding the government is in a “stronger” position than it was in November when the bailout was negotiated.
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