For those who thought this day might never come, it might be an anti-climax but Minister for Finance, Michael Noonan is reported to have said on his trip to the US that steps will now be taken to impose haircuts on senior bondholders in Anglo Irish Bank (“Anglo”) and Irish Nationwide Building Society (INBS). Information from the Central Bank of Ireland in March 2011 suggested that Anglo had €3bn of senior guaranteed bondholders and also €3bn of senior unguaranteed unsecured bondholders, though some €200m of that was repaid in May 2011 without any haircut whatsoever. INBS has approximately €600m of senior unguaranteed unsecured bondholders remaining. Anglo has so far received €29.3bn of citizens’ funds whilst INBS has received €5.4bn. Billions of euros have already been repaid across both institutions.
Reporting from RTE suggests that at this stage Minister Noonan is targeting the €3.5bn of senior unsecured unguaranteed bonds in Anglo and INBS. RTE also say that “he would be going to Ireland’s European partners to propose significant cuts in the money to be paid to the bondholders”
It is not clear at this stage if the Minister is proposing a unilateral burning of senior bondholders or if any burning will be, as is the case now, contingent on permission from the ECB. It is also not clear why there has been a change of stance. Has the ECB moved? Will the ECB change the arrangements for its non-standard liquidity programme which presently sees some €80bn of funds costing just over 1% in Irish banks? Many questions remain unanswered. This post will be updated later when more details emerge.
Of course, as was reported here last week, it is likely that INBS will need additional capital on top of the €5.4bn already injected, and Anglo may be in a similar position – remember the Central Bank of Ireland (CBI) two weeks ago just confirmed that loans loss estimates remained in line with previous estimates; as the analysis of INBS’s year end accounts showed, there were additional losses to loan losses. Anglo may find itself in a similar position. The CBI is declining to respond to the question of whether new capital is needed for INBS.
The last question is whether moves are afoot to burn senior bondholders at Irish Life and Permanent, AIB and Bank of Ireland. CBI governor Patrick Honohan referred to “current policy discussions” in respect of protecting senior bondholders in his Vincent Browne interview last Friday. Are we about to stoke up the fires?
UPDATE: 15th June, 2011. It seems that the sole source for the above is an RTE one-on-one interview with Minister Noonan in Washington where he is presently visiting the IMF and US Treasury Secretary Timothy Geithner. The interview was played on RTE Six One News and will be available online for free play-on-demand here shortly. Having seen the interview, I don’t think it merits the headline billing being given it by RTE. Minister Noonan is to present the ECB and EU with a plan to allow a degree of haircut on Anglo and INBS senior unguaranteed bondholders. The Minister seemed to me to be pursuing an angle of Anglo and INBS no longer being banks and that consequently their debts to bondholders should be treated differently. From this perspective, it is difficult to see the ECB reacting positively to the plan but RTE certainly seems to think it has legs.
UPDATE (1): 16th June, 2011. It seems that Minister Noonan’s one-on-one interview with RTE was not a solo run, as Tanaiste (deputy prime minister) Gilmore has provided more background to Ireland’s position, He is reported by RTE to have said “The Irish economy is in an entirely different situation than the economies of some of the other countries whose budgets are in trouble. Therefore we are in a much stronger position today than we were at the beginning of this Government and certainly than we were in November to negotiate with the European Central Bank” It is hard to see how, taken in isolation, Ireland is in a better economic position now compared with last November, though the bank stress tests have overall been well-received which might give some confidence as to the funding required there. The Irish Times today reports what is likely to be the Irish line in any new request to the ECB “I put my cards face up on the table, saying: ‘Look, it’s no longer a bank. Anglo is now merged with Irish Nationwide. It’s a warehouse for impaired assets. Its deposit base has been moved out into the pillar banks [...] we don’t think the Irish taxpayer should have to redeem what has become speculative investment” and “the officials “understood our position fully” and said “they would work with us to seek to resolve it [...] our difficulty on this and on previous occasions was never with the IMF. The difficulty is what attitude the European Central Bank may take.”
UPDATE (2): 16th June, 2011. We are still in the dark as to whether the Noonan “plan” has any prospect of being approved by the ECB, but it is clear that there is a degree of co-ordination now in evidence in the grish Government side. In the Dail this morning, the Tanaiste said that the Government would consider new legislation to impose haircuts on senior bondholders and not just at Anglo/INBS, but that any such legislation would be subject to approval from the ECB. There has not been any reaction from the ECB yet, nor specifically from the EU though RTE quote a spokesperson for Olli Rehn as saying it was “always ready to consider any proposal in the context of completing the restructuring of the Irish banking system” It seems curious that almost 24 hours after the yesterday’s statements by Minister Noonan in Washington, that the ECB has not given a reaction, very curious as the 17 governor members and the six board members are usually happy to give their (unco-ordinated) opinion.
UPDATE (3): 16th June, 2011. The transcript of the one-on-one interview with Minister Noonan is now available from RTE.
UPDATE (4): 16th June, 2011. Ransquawk is reporting that Minister Noonan will not “touch” bondholders in AIB or Bank of Ireland, and that “every red cent” will be repaid to senior bondholders in those two banks.
UPDATE (5): 16th June, 2011. Minister Noonan’s interview on Bloomberg TV in the US today is now available here. During the interview he asserted in very strong terms (an “absolute commitment”) that “every last red cent” will be repaid to senior bondholders in Allied Irish Banks (AIB) and Bank of Ireland – he didn’t specifically mention Irish Life and Permanent. Minister Noonan claimed that it was the plan all along to discuss senior bondholders at Anglo and INBS in the Autumn 2011 but that recent events had brought that forward. Apart from the banks, Minister Noonan spoke about Greece and said his primary concern for Greece was on the domestic political side but that he expected the next tranche would be paid in July 2011. There was a bit of spin when Minister Noonan claimed we had the strongest government ever in Ireland – it’s a coalition today whereas we have had majority governments 30 years ago. He indicated a decision on Greece on 11th July which appears to be on the brink of Greece’s obligation to repay maturing debt on 15th July.
UPDATE: 17th June, 2011. The Irish Times seems to have secured the first (and possibly the last) ECB reaction to Minister Noonan’s mooted “plan” for Anglo and INBS senior bondholders – “The general stance of the ECB is known and is very unlikely to change. This particular issue has to be looked at when the time comes” said an unidentified source, but it has the ring of solemn truth about it.Now that the smoke is clearing from the bombshell in the US, it seems that Minister Noonan will not be broaching the subject with the ECB until “the Autumn”. I don’t think there will be any more forthcoming from the ECB at this stage so to summaise and wrap up this episode: two days ago Ireland’s finance minister said he had plans to impose losses on senior bondholders at Anglo and INBS (he didn’t mention AIB or Bank of Ireland at the time), yesterday he made it absolutely clear that there would be no losses at AIB and Bank of Ireland and said this was a plan which he had intended broaching with the ECB in the Autumn anyway but that the circumstances in Greece had brought the timing forward and today we get what’s likely to be the most expansive ECB response to the “plan” which is “get lost”, and also Minister Noonan won’t now raise the “plan” until the Autumn. At home, Fianna Fail public expenditure spokesman Michael McGrath criticised the announcements by Minister Noonan claiming they were motivated more by political concerns surrounding the first 100 days in office of the new Government. It’s hard not to place some credence in what Deputy McGrath says.