It’s a cynical question, because the excuse being proffered by Ministers Ceighton and Noonan for our bailout interest rate not being discussed this week – “there’s not enough time and they’ll have to devote all of it to Greece” – is both childish and patronising. It seems that the managing director of the IMF, Dominique Strauss-Kahn was to have held meetings of his own with the group of EU finance ministers meeting in Brussels over the next two days, but because he is now indisposed in Riker’s, presumably that frees up some time in diaries for progress on the 5.8% interest rate applying to our bailout?
Of course the original excuse was a load of rubbish anyway. Negotiations on our interest rate take place below ministerial level and it is really only the most high-level of principle that needs actual ministerial or summit input. If we are to believe that a 2-day meeting of EU finance ministers is unable to find any time forIreland, then what does that say about the fragility of the EU decision-making process. What would have happened if problems were uncovered in Spain’s banks this week? “Too bad, because we don’t have the time”
Of course even a 1% reduction in interest rates will have a negligible effect on our debt, when set against the €35bn in senior unguaranteed secured and unguaranteed unsecured bondholders. And because this table never gets too old, let’s remind ourselves again of the bondholder position in Ireland banks, courtesy of the Central Bank of Ireland.
NAMA Wine Lake 
Is it the case that the only realistic savings are possible in the final two columns of the table? We know the subordinated bonds are taking a cut so that just leaves the unsecured senior bonds.
The secured bonds are back by assets (and maybe even over collateralised) so it would be hard to see savings here, plus more than 60% of them are in BOI which is the strongest of the main banks. The guaranteed bonds seem untouchable.
Are we just limited to a possible cut to the unsecured senior bonds which at a 50% haircut would generate around €8 billion of savings? Significant but not huge in the greater scheme of this crisis.
@Seamus, it is the case that all four categories are constrained to a greater or lesser degree. As the ongoing case in the High Court where some AIB subordinated bondholders are trying to stop a forced haircut to their holdings demonstrates, even the most vulnerable of the four categories is problematic.
http://www.rte.ie/news/2011/0516/abadi-business.html
Revoking the guarantee or forcing changes to the terms of secured bondholdings, perhaps using the Credit Institutions (Stabilisation) Act will be more difficult than forcing subordindated bondholders to take haircuts, but ultimately those are theoretical options. It should be said that serious people, like governor of the Central Bank of Ireland, Patrick Honohan have said that they sought legal advice and were given to understand that the guaranteed bondholders could not be touched, so the theoretical option may remain just that.
As for €8bn being significant, you are right that in the context of a national debt of €200bn+, €8bn might seem insignificant but we are entering the endgame here after which Ireland will probably be returned back to making decisions in terms of millions or hundreds of millions – the Jobs Initiative last week, was a good example – so €8bn now will in those terms be very significant indeed.
Do you have the data to hand on how much of these SBUs are held by Irish institutions? Is there really any benefit in robbing Peter to pay Paul?
@karl, I recall seeing an analysis, I think by the Central Bank of Ireland or the stress tests, which showed that a sizeable amount of these bonds were owned by Irish residents. But it remains unclear, to the best of my knowledge, how much is owed to foreign banks operating in the IFSC and what we might call domestic residents.
@NWL what do you mean when you say “we are entering the end game”?
@BR, no more than we are getting close to the loss figures in the banks, we have the deficit under control in the sense that it has stabilised and monthly outturns are broadly in line with budget, we have financing in place through the bailout (though there remain issues with rolling over debt and substituting ELA/ECB-funding with medium term funding) and the bank deleveraging plans are apparently at an advanced stage. The reality of our world is becoming very clear indeed. Choices remain about deficit reduction and there are seismic decisions that can be taken with the banks. But the view on here is that we have most of the components now out in the open (give or take €10bn here or there). And that’s all I meant by “endgame”
@ NWL,
And isn’t it possible that taking such a course of action with the senior unsecured bonds could have negative consequences to offset the possible €8 billion of savings. It is very hard to say what these might be but, for example, even a small change in the ECB funding provided to the banks wouldn’t be long in eroding any benefit. Of course, we’d like to have “burned the bondholders” AND have access to cheap ECB funding but it does have the look of an either/or choice from this remove.
@Seamus, it is a certainty that burning senior unsecured unguaranteed bondholders would have negative consequences. That’s agreed, it’s the quantification of those negative consequences that is at issue.
The Central Bank of Ireland extraordinarily issued the data on bondholders this year to inform the public debate. There hasn’t been a great amount of subsequent debate that has been able to get us to a point where we can compare two courses of action.
We don’t editorially attack anyone on here and for what it is worth, governor Honohan is held in the highest professional respect but even if he was the incarnation of Rumpole of the Bailey, Judge Kelly and the lad who got OJ Simpson off (the first time), I would still like to see the legal advices and the cost/benefit analysis of revoking the guarantee. And for that matter, burning any bondholder. These figures are just too damned big to be accepted without challenge.
I absolutely agree. In an interview with Vincent Browne on the night of the stress tests Prof. Honahan used the words ‘calculte’ or ‘calculation’ ten times in a short segment discussing haircuts to senior bondholders. He concluded:
“What I am doing is a calculation that says the net advantage to the fiscal accounts, to the ability of Ireland to fund all the services you are talking about. That is the calculation that has to be made and it is not at all clear that without the support of our European partners, this would be positive. In fact I think it would be negative.”
The full transcript is here. It is clear that he has done this calculation but not once did he offer the figures involved in this analysis. He never offered the benefits and costs of this calculation.
How much does he think can be saved through burden sharing with unguaranteed senior bondholders (and he limits it to unsecured bonds)? Then, on the other hand what cost does he put on the consequences of this decision? He clearly believes that the costs exceed the benefits but seems unwilling to provide the numbers behind this view.
We should be able to see these figures.
Hi NWL,
Quote: “… a sizeable amount of these bonds …”. Shouldn’t that be “… a sizeable number of these bonds …”? The grammatical rule I learned was: countable nouns take ‘number’.
@Bunbury, the English Mr Fowler seems to be silent on the subject though he does say that “sizable” is preferable to “sizeable”. I think I might accept defeat on this one though. Although you will find the rule flouted frequently, I believe you’re right and that you use “amount” to refer to a quantity and “number” to refer to people or things that can be counted.. Thank you as always for keeping me grammatically honest.
UPDATE: By the way, before you point out that in relation to a post today entitled “New mortgage arrears data shows intensification of problems”, that “data” is a plural and should take a plural verb, it is long established that “data” is commonly interpreted as a singular noun and if you were to use the plural verb, that is “New mortgage data show intensification of problems”, it would read incorrectly to most readers.
@Bunbury•
Answer for NWL “I don’t play accurately – any one can play accurately – but I play with wonderful expression.”
– Oscar Wilde, The Importance of Being Earnest, Act 1
AND
•”Oh! I killed Bunbury this afternoon. I mean poor Bunbury died this afternoon.”
– Oscar Wilde, The Importance of Being Earnest, Act 3
Now back to burning the Bondholders. It is impossible for us to know which politicians, journalists, bankers, economists are representing the interests of the bondholders and European banks. The view of anyone employed by Europe has to be jaundiced. Also anyone employed by investment groups like Goldman Sachs etc. However it is possible that what is good for Europe is good for us. Either way we are on a road to ruination. Someone has to decidel which is the least bumpy road. I vote for Morgan Kelly.
I suppose burning the seniors may risk contagion spreading to the ECB’s ELAs – & then they can rub out ‘lender’ and write in ‘owner’ in a document or two.
‘to loose one bank is a bladey blah to loose two is bladey bladey blah’ something Oscar said but probably regurgitated from a Greek as most of his mock-aphorisms are.
@ down_the_swanny
Touché.
But, “Nothing will induce me to part with Bunbury …” ( First Act).
@NWL
Thank you. Yes the rule is flouted very regularly.
I wouldn’t dream of questioning your use of ‘data’ as a singular noun. As you say, it wouldn’t read right if you had used ‘show’ rather than ‘shows’. But don’t get me started on the misuse of ‘forego’ and ‘forgo’ (not on your site I hasten to add).
@ NWL
Premature of me. On re-reading your post I see you wrote ‘flaunted’ instead of ‘flouted’. Shock! Horror!
@Bunbury, as soon as I had read your original comment, I changed the original. Blame a nasty bout of lurgy for the past few days!