Barclays suggest plan to absorb Anglo losses

THE GOVERNMENT could consider letting bond holders in Anglo Irish Bank absorb part of the losses at the bank to restore confidence in the economy, according to investment bank Barclays Capital.

The bank argues that one of the main factors undermining confidence in the Irish economy is fear over the Government’s ability to bear the €25 million-plus cost of bailing out Anglo Irish.

Making bond holders bear some of these losses could engender confidence if it was combined with the provision of additional capital to viable banks such as Bank of Ireland and AIB to reassure financial markets they were creditworthy.

The bank’s view is contrary to the Government’s view that honouring Anglo Irish Bank’s commitments to bond holders will underpin confidence in the economy.

According to Barclays, the current re-rating of Ireland – which has seen the cost of borrowing rise above 6 per cent – reflects concern about the possibility of further bank losses and lower-than-expected growth in the economy.

The negative trade-off between growth and further fiscal consolidation – which might also restore confidence – means the Government has very limited options, say Barclays.

If there are additional financial sector losses or the economy worsens, “The Government may need to seek outside help from either the European Union or International Monetary Fund in such circumstances,” said Barclays. “At this juncture”, given the comfortable near-term liquidity position of the Irish treasury, there isn’t a need to draw on financial assistance, they said.