Default - and so it starts

There was never going to be a big announcement that Ireland was going to default on its debts. However, today (after a previous hint by Noonan), AIB has announced that it is going to default on sub-ordinated debt and offer a buyback of 10c in the euro.

rte.ie/news/2011/0511/aib-business.html

Make no mistake, this is momentous news, it is the start of the Irish default / markdown / adjustment / unwinding that needs to happen. The powers that be recognise that the situation is unsustainable in the medium term and hope that the markets will not be spooked by this announcement. Expect more announcements of this nature strung out over the next five years.

And if they refuse the 10c, then they are only likely to be offered 1c.

Might go to court first.

Indeed, they’ll only be offerred 1c in the 100,000c (1c per thousand units).

Anyone have any idea what they were trading at? Were they even exchange listed?

Awww… now I have to rename the main forum and so soon!

Straight from the “This Time is Different” playbook. The first event was raising the retirement age to receive the state pension to 68. That’s a default.

This is part II…

Domestic default is so much more common than default on international obligations. Domestic default happens so often that people don’t even recognise it as such.

As an aside are the previous names listed somewhere? The old memory is less than perfect.

What am I missing that makes this more serious than when Anglo did their buy back scheme?

I agree that it’s default but is this somehow different from the Anglo one?

I believe there are already two cases pending in the high court regarding this; yogi posted a link today in the AIB thread I think from another blog giving a breakdown of the subbie holders and what there respective haircuts might be. Too jaded tonight to try and locate it.

I recall that the cases were originally scheduled to be heard in July but then noonan successfully got hearings brought forward to early June due to the potential delays in enacting the buy back, much to annoyance of plaintiffs.

This was a given once the SLO came into force and following the us of the SLO in relation to Anglo.

The other great piller of our new stable bailed out banking industry may be also considering a ‘writedown’ on its junior debt.

independent.ie/business/irish/boi-to-offer-junior-debt-holders-just-20c-in-euro-2647040.html

@ quozl

The reason this is different is that Anglo is a failed bank that is being wound down. AIB and BOI are the pillers on which the government want to rebuild the Irish banking industry. The fact that they are burning junior bondholders is a sign that these banks are in big trouble and are not capable of standing alone. This puts the governments strategy in question as there will be few buyers for banks until their liabilities have been sorted out. There appears to be increasing support for reviewing the proposal that Morgan Kelly forwarded regarding separation of Bank and Soverign debt and handing the former to the ECB.

Good point, Enoch Root

In addition, there is still private share ownership in AIB. It could be argued, even if Anglo was not being wound down, that it was in examinership and so creditors take losses. There is, however, an established chain of writedowns:
equity holders
sub-debt holders
senior debt holders and depositors

In the case of AIB, link 2 of the chain is being detached before link 1 has been. If there is an attempt to impose haircuts on BoI bondholders, there will be an even bigger fuss.

Would default lead to a war?! It is horribly like just the time in the historical cycle for a war, won’t bore you with the details unless someone wants me to? A lot of unrest as well within Europe, the Greeks protesting, the Spanish and Italians and of course Portugal teetering on the brink, and Sarkozy and the Germans plundering ahead taking the lion’s share of industry and acclaim as they have consistently been so amazingly prudent and fabulous, ha ha. Sarkozy strikes me as being as arrogant as hell, am so unimpressed with him. Angela Merkel seemed to be the brains of the organisation from our perspective although I can see the German voters’ point in wanting someone with more focus on the domestic situation. Give me Enda any day over any of them. Could we not disguise Seanie Fitzpatrick and get him into a prime job in Banque de France and let him loose? Might bring Sark and his Sultry Better Half down a peg… Where are the Irish bankers when we need them?

independent.ie/business/pers … 47568.html

I suspect this article will have the reverse of the intended effect. Anybody who reads that will be moving their money away from the zombie banks asap if they take it seriously.

Ireland expects debt restructuring in 3 years: report → reuters.com/article/2011/05/ … L620110508

3 years…I reckon it will be much, much sooner.

Such a bullshit article.

The EZ could either allow what’s set out above to happen, or they could find a way of finesseing €100b of our debt out of existence.

I ask myself why on earth they would choose the former - with the contagion and reputational damage it would cause across the whole continent - as opposed to the latter? It flies in the face of logic.

Not the logic of the goldbugs or someone who drones on about fractional reserve banking… :laughing:

why on earth would they choose to “find a way of finesseing €100b of our debt out of existence”? This isn’t the St Vincent de Paul we’re dealing with, and reasons of moral-hazard alone sasy they’d be wrong to wipe out our debt. Also, Greece and portugal would follow suit and default winthin the hour!

The article itself is written as an antidote to all the Morgan Kelly momentum, so on its own merits I think its ok and don’t see why it should put forward the opposition case too; theres been enough of that lately.
As someone else pointed out, when reading it, you felt compelled to move your savings out of the country!

As for the punt being re-instated, our savings accounts being frozen and devalued and trackers being quashed, those are certainties. The Gov blanket guarantee of savings also disappears as no-one will lend to them to cover the savings in the first place.

If we default Joe public will take it in the ass a lot worse than it is now.