NTMA suggested haircuts of €9.1bn on senior bondholders at banks

Markets had factored in ‘burden sharing with subordinate and senior debt’

The National Treasury Management Agency advised the Government in March 2011 that haircuts of €9.1 billion could have been imposed on senior bondholders at the six banks covered by the State's guarantee.

This emerged yesterday from core documents used by the Oireachtas banking inquiry to support its public hearings last year into the banking crisis. Thousands of supporting documents were published alongside the main report of the inquiry.

On March 31st, 2011, the NTMA told the Government that markets were "expecting and have priced in burden sharing with subordinate and senior debt" but warned this might not sit well with "external authorities", a nod to the European Central Bank.

“It is the recommendation of the NTMA that, subject to a view being taken by Government on the potential implications of an adverse reaction from the external authorities and the implementation of an appropriate legal framework, immediate steps should be taken following the announcement of the PCAR/PLAR [stress test exercises] results to enable burden sharing with both senior and subordinated debt,” the NTMA said.


Senior debt

The agency estimated a haircut of 60 per cent could have been applied to the senior debt of


(saving €3.5 billion),

EBS Building Society

(€312 million) and Irish Life&Permanent (€694 million). A haircut of 45 per cent was estimated for

Bank of Ireland

, yielding €2.3 billion, and 90 per cent for the merged

Anglo Irish Bank

and Irish Nationwide Building Society, netting just under €2.3 billion.

These cuts would have been applied to senior, unsecured, unguaranteed bondholders at the end of March 2011. The NTMA told the Government burden sharing across senior and subordinated bondholders would increase the probability of preventing a sovereign credit-rating downgrade.

It also said the Attorney General was examining the development of legislation to enable the implementation of burden sharing with senior debt and proposed this be in place prior to any approach to the external authorities.

Wind-down mode

For AIB, Bank of Ireland, EBS and IL&P, it was assumed the process could be completed by September 2011 and by July that year for Anglo/INBS, as these institutions were in wind-down. These haircuts were never imposed.

In his evidence last September, Minister for Finance Michael Noonan recounted how he had planned to announce burden sharing in relation to €3.7 billion worth of unsecured, unguaranteed senior debt attaching to IBRC (Anglo and INBS).

He changed his mind at the 11th hour after the ECB issued an “explicit threat” to withdraw emergency liquidity support for Irish banks. This was the time the ECB’s then president Jean-Claude Trichet remarked a “bomb” would go off in Dublin if a haircut was imposed on senior bondholders.

The inquiry found the ECB’s opposition to burden-sharing, both in March 2011 and in November 2010, at the time Ireland was negotiating its bailout, “contributed to the inappropriate placing of significant banking debts on the Irish citizen”. It is “not possible to estimate the exact savings that could have been achieved from burden sharing as it depended on the type of bond “burned”, the timing and the institutions involved.

Ciarán Hancock

Ciarán Hancock

Ciarán Hancock is Business Editor of The Irish Times