FT.com / Comment / Editorial - Pluck of the Irish
It is time to staunch the bleeding. As Irish state guarantees near their expiry date, some banks will not be able to refinance their balances. The government should prepare insolvent banks for forced debt-for-equity swaps, which would instantly recapitalise the banks in question and cap the government’s exposure. This cannot be done frivolously; European institutions are exposed and EU partners must be consulted. But someone must put an end to the practice of handing banks blank cheques. Some Irish pluckiness would benefit us all.
That’s very in step with Fooled By Randomness’s conjecture over there on another thread
I’m going to go out on a limb here and suggest that the Irish authorities may be about to do something quite smart. Recent signals are:
Honohan & others signalling that it may be “come to Jesus” time for Anglo. EU Commission silent so far on the alleged “business plan”.
Lenihan signalling that the guarantee may be extended but in significantly altered form. Focus on subordinated bondholders in the press and the media.
Nama discounts looking less ridiculous and bond analysts pointing out that a € 100m SPV with €40bn in borrowings just to satisfy Eurostat is still government debt.
AIB losing friends and credibility; the emperor has no clothes and is bust and everyone knows it’s bust and that its loan book and management resemble Anglos much more than they have wanted to admit so far.
The bond markets pushing Ireland to the top of the s*it list. The cut to AA- is not the real story; the “negative outlook” is. NTMA pointing out in response that the banks have assets as well as liabilities. Its not a good response in credit terms, but it shows their thinking is about recovery on default, not avoiding default.
NTMA raising liquidity no matter what the cost and a short term T-bill auction for 2nd week Sept to raise more.
I realise this is crediting the Irish establishment with a heretofore unobserved joined up thinking but all of these signals are consistent with a hardball approach to the banking guarantee which would put more of the losses on the bondholders at the expense of AIB in particular.
Although Ireland’s solvency situation looks dire medium term, the near term liquidity situation is pretty good. The NTMA has built quite a war chest. This can either be pissed away in deficits and redemptions of unsecured bond holders over the next 12 months or it could be used to negotiate with bondholders with the threat of insolvency over AIB and Anglo. I take the above as signs that thinking is going in this direction.
Really screwing the few remaining bondholders and upending the incumbent team at AIB is probably one of the few get out of jail cards for the rest of the Irish establishment right now. Otherwise, its curtains for most of them. Probably not 2010, but 2011. The budget and bank plans have to convince S&P who have actually woken up, as opposed to Eurostat or ECB who are disposed to be helpful. That means less ability to spin. A real go at the bondholders would be an answer.
Maybe (hopefully) he’s psychic.
One way or another, it looks like the phony war is coming to an end.
I dont think it was a phony war I think they were looking after their own to the detriment of the rest of us. Oh and add in an element of stupidity, cute-hoorism, gombeenism etc etc.
Supposedly there’s never a wrong time to do the right thing; but I just wish they’d done it about €20B or €30B ago !
and therin lies the rub
that 30bn was given to throw a lifeline to allow some of their mates rescue some stuff.
e.g Johnny Ronans crew still being paid millions every year for Failure.
It justifies EVERYTHING that Peter Mathews has stated ad nauseam to anyone who would listen for the past 12 months.
The FT last week gave the Irish government an out. They have covered up the Bank Robbery for two years while everybody else knows about it…save the identity of the robbers.
When a goverment wants to stiff its taxpayers for €25bn it is incumbent on them to tell the taxpayers who the robbers are, in this case it is the Anglo Bondholders. Some bonds have been issued in the past 2 years UNDER the bank guarantee scheme so we are on the hook for them. I am particularly concerned with pre guarantee Seanie era tat though.
These people should accept pennies in the pound for their failed gamble and for failing to due diligence Seanies scamming. They did not do so.
Now it is time to find out who they are…even if we find that Irish Life is a major one…and to tell them we are skint and please shaggoff willye
To the FT article.
It is time to staunch the bleeding. As Irish state guarantees near their expiry date, some banks will not be able to refinance their balances. The government should prepare insolvent banks for forced debt-for-equity swaps, which would instantly recapitalise the banks in question and cap the government’s exposure. This cannot be done frivolously; European institutions are exposed and EU partners must be consulted.
But someone must put an end to the practice of handing banks blank cheques. Some Irish pluckiness would benefit us all
As to the rump that is left, run it off as a bad bank.
This is what Lenny said a year ago during the NAMA debates in the Dáil.
debates.oireachtas.ie/DDebate.as … All&Page=2
Much of the public debate in recent weeks has revolved around requiring losses to be distributed among shareholders and bondholders. I have stated on numerous occasions that if, after the introduction of NAMA, the banks require capital, this capital will be in the form of an equity stake. This will dilute the current ownership of shareholders. We are all aware that share prices in the Irish banks have fallen significantly from their peak prices in early 2007. Many shareholders have already lost vast sums, in some cases as much as 90% of the peak value, and are likely to lose more if their shares are diluted further. With regard to bondholders, a large amount of subordinated debt has been bought back by the banks in recent months at a significant discount with the result that bondholders took substantial losses relative to the face value of the bonds. This was organised in such a way that there was no event of default. The bondholders were given a choice and they took it. Buy-backs by the three largest banks have resulted in losses of almost €4 billion on face value for these bondholders but resulted in accounting gains for the financial institutions which have increased their core capital.
It is important to note that the bulk of the bonds in issue by Irish banks are not subordinated debt but debt of a far more fundamental character. They are ordinary senior debt bonds entered into by the banks. There is a perception in the media that senior bondholders are natural risk takers, aiming to achieve high rewards for taking high risk. That is not the case. Senior bondholders are usually and typically pension funds, insurance companies and other long-term providers of debt. I have pointed out in recent days that they also include credit unions. These bondholders provide loans for viable entities on the basis that they are senior to other creditors and are secure. In other words, they are in the same position as depositors. These same senior bond debt investors also buy Government debt and are an important source for keeping the economy funded. These senior bondholders are guaranteed under the Government guarantee scheme. Any suggestion these parties should be invited to consider a reduction in the amount repayable to them would have catastrophic effects for the banking system, the funding of the State and the wider economy. Many of these senior bondholders are trading companies in Irish commercial life with substantial numbers of employees.
This is the key criticism of the set of proposals made by one of the Opposition parties. Fundamental to its proposals is a threat to default on significant levels of bank debt. This would have a severe detrimental effect on the remaining banks and the State’s ability to fund itself. The Government does not accept that the best interests of the State would be served by allowing a culture of default or potential default to develop. This would undermine financial stability and result in the need for further action to rescue the banking system. I have already made it clear that the Government considers that these proposals are not workable and lack sufficient detail for serious examination. The Irish banking system, like all other banking systems, must continuously replenish its funding. Deposits, short-term commercial paper, note issues, short and long-term bonds must all be refinanced on a regular basis. The scale of this refinancing is far greater than the scale of refinancing in which the State must engage. The ability to do so depends on a fundamental belief on the part of the investor in the viability of the investment and the stability of the institution concerned. Who would invest at a rate of 5% or 6% if they felt there was any serious risk of default? Who would invest in Irish financial institutions at a rate of 5% if they were advised that the institutions were being stress tested for another year, and that at its conclusion, consideration would be given to defaulting on these instruments? What are the collateral risks to the State? We need to work together on this problem for the sake of the country. While we can make constructive proposals and work with them, I do not believe that defaulting on senior debt should be on the agenda.
Yep, the perception is that the bondholders are foreign speculators, hedgies and the like.
The reality is probably that they’re BoI, AIB, ILP, Quinn, FBD etc… oh, and your local friendly Credit Union.
Burning them might not turn out so well.
PTSB are in for 886 mn of Anglo state-guaranteed bonds…
post or pre guarantee issue…or have they said ??
Irish Life arm or Permo arm ??
Surely you’re better off burning them all if they’re local, that way you unravel the mess and clean up the bits that need to be cleaned in a more transparent way.
Either way it’s going to cost.
I think we should cut off both arms and euthanize this patient before it suffers any more, it’s the decent thing to do.