THE EUROPEAN Central Bank is unlikely to back moves by the Government to inflict losses on senior bondholders in Anglo Irish Bank when the Government raises the issue with the bank in the autumn.
Frankfurt has not changed its resistance to any measures to impose losses on senior bonds, according to a euro zone source.
“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,” the source said.
Minister for Finance Michael Noonan clarified the Government intentions as the prospect of losses being inflicted on Anglo bondholders helped push notional borrowing costs for Ireland to record levels amid renewed tension in sovereign debt markets over Greece.
Mr Noonan said the Government’s plans were limited to Anglo and Irish Nationwide. The two defunct institutions owe €3.8 billion on senior unsecured unguaranteed bonds, of which €750 million is due to repaid by Anglo on November 2nd.
The Government plans only to impose losses on holders of these bonds and every “last red cent” of debt owed by the Government and the “pillar banks” – Bank of Ireland and AIB – would be repaid, he said.
Tánaiste Eamon Gilmore said Anglo and Irish Nationwide were in “a different place to bondholders in the two pillar banks that we expect to be out there raising money privately.”
Mr Noonan’s plan for Anglo’s senior bonds came as a surprise to the European authorities. “We are not aware of such a proposal. Such a proposal has not been conveyed by the Irish authorities,” said the spokesman for EU economics commissioner Olli Rehn. “But of course we are always ready to consider any proposal in the context of completing the restructuring of the banking sector.”
The spokeswoman for competition commissioner Joaquín Almunia said current submissions to Brussels on the orderly liquidation of Anglo did not contain “any proposals from the Irish authorities to this effect”. Interviewed today in The Irish Times, Mr Almunia said the 2008 bank guarantee – which included all the banks’ bonds – was a mistake and that the sweeping scope of the measure served to concentrate bank losses on taxpayers. Mr Almunia, who at the time was EU economics commissioner, said the guarantee curtailed the capacity of the Irish authorities to impose losses on senior bank bondholders and undermined Irish sovereignty.
Mr Noonan said the Government would not act without the support of European authorities on his plan for burden-sharing. “We have very good relationships with the Europeans at commission and the ECB level and with the IMF. We have negotiated a programme with them and we are fulfilling all of the conditions of the programme,” he said.
He insisted yesterday that there was no change in the Government banking policy. “Our position is constant. We are fulfilling the [bailout] programme completely, all the obligations of the programme.”
The value of Anglo Irish bonds due for repayment in November fell in the markets early yesterday before recovering as investors took the view that Mr Noonan’s plan was unlikely to be backed by the ECB.
Mr Noonan, who is on a visit to the US, said the turmoil over the Greek bailout was making the Government nervous. “Ireland isn’t Greece, we’re structured differently. Our fear here is that there would be some knock-on effect which will impact adversely on Ireland,” he told Bloomberg Television.
Fianna Fáil’s spokesman on public expenditure Michael McGrath said the Minister’s announcement was “more about getting good headlines on the Government’s 100th day than making any real progress on the issue”.
