Irish Start Bank Charm Offensive as Germany Signals Reservations

Irish Finance Minister Michael Noonan is stepping up his campaign for a deal on the nation’s legacy banking debt, stopping in Paris, Berlin and Rome before finance ministers gather in Cyprus this week.

Noonan is meeting today with French counterpart Pierre Moscovici before talks with Germany’s Finance Minister Wolfgang Schaeuble. Tomorrow, he visits Italy’s Vittorio Grilli and then flies to Cyprus for a meeting of European finance ministers.

Ireland’s debt level has more than tripled over the last five years, in part because of the cost of saving the nation’s financial system. While European leaders in June opened the door for the euro-region’s rescue funds to directly recapitalize banks, Schaeuble has already signalled his reservations to giving the Irish a better deal.

“Noonan and other Irish officials are on a proper charm offensive here,” said Eoin Fahy, an economist at Kleinwort Benson Investors in Dublin. “There is a real deal to play for.”

Irish borrowing costs have fallen since the June 29 commitment, which Prime Minister Enda Kenny hailed as a “seismic shift” in policy with the potential to ease the burden on taxpayers. Ireland’s government has injected or pledged 64 billion euros ($81.9 billion) to save the nation’s banks, after a real-estate bubble burst in 2008.

Noonan said yesterday in an interview in Westport in Western Ireland that European finance ministries are in favor “at a level of principle” on striking an accord, though details still need to be agreed.

Yields Fall

The yield on the benchmark October 2020 bond stood at 5.62 percent yesterday, having fallen from 7.13 percent just before the June gathering of euro-area leaders. In the wake of the European pledge, Ireland sold bills and bonds for the first time in almost two years, and yesterday laid out plans to auction another 500 million euros of securities tomorrow.

“There’s some room for the market to be disappointed” if an accord didn’t meet expectations, Craig Beaumont, the International Monetary Fund mission chief for Ireland, said on a call with reporters on Sept. 10.

Already, some slippage has crept in. While the European Commission said in July that proposals on Ireland would be presented to euro-area finance ministers in September before a final decision in October, an accord probably won’t be ready by then, two people with direct knowledge of the talks have said.

Spanish Banks

European leaders are focusing on a deal to resolve Spain’s banking crisis first, and Irish officials also need to counter concerns among German policymakers about an Irish agreement.

The IMF said this week Ireland would “significantly reduce” its financing needs in the coming years if it could replace about 30 billion euros of so-called promissory notes used to bail out former Anglo Irish Bank Corp. with long-term government securities or a euro-area bailout fund loan.

Ireland could lower its debt level if the permanent euro- area rescue fund invested directly in the nation’s banks, the fund said. Five of the six biggest domestic banks have been taken over by the government.

Topped Up

“We will have to avoid a headline like ‘Aid programme for Ireland Topped Up’ because then investors in California or Shanghai might not understand that this top-up is a reward for Ireland, but might be tempted to conclude that what was agreed two years ago for Ireland was not enough,” Schaeuble told the Irish Times in the article published on Aug. 24.

In the meantime, Ireland is pressing ahead with its return to credit markets. The National Treasury Management Agency, based in Dublin, plans to sell 500 million euros of three-month treasury bills on Sept. 13.

The NTMA sold 500 million euro of three-month bills at a yield of 1.80 percent on July 5, returning to debt markets for the first time in almost two years.

“We would expect that the bills will price around the 1.50 percent mark, which is an improvement on last time and helped by the European Central Bank’s bond-buying program announcement last week,” said Liam Dunne, a fixed-income analyst with Dublin-based securities firm Merrion Capital.

To contact the reporter on this story: Joe Brennan in Dublin at jbrennan29@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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