US authorities put pressure on Irish government in crisis

Washington urged Dublin at the height of the financial crisis to enter talks with a US hedge fund over losses it was compelled to take on bonds in the nationalised Allied Irish Banks, it has emerged.

Kevin Cardiff, former secretary general of the Department of Finance, says in his book on the crisis that the government came under pressure from the US authorities to “come to the table” with Aurelius Capital Management after a lobbying campaign by the fund. Aurelius took High Court action against the Government in 2011 after it moved to impose losses of more than €1.6 billion on AIB’s junior bondholders.

In dispute

The fund, which remains in dispute with the Argentine government over that country’s $80 billion (€71.8 billion) sovereign debt default in 2001, ultimately withdrew the legal challenge.

Mr Cardiff tells how Aurelius tried to “wriggle out” of losses on its AIB bonds by engaging “powerful lobbyists” to get the US Treasury, the State Department and members of Congress to apply pressure on Ireland. He goes on to say the State’s successful rejection of the fund’s efforts may have saved it “hundreds of millions” of euro as failure in the case may have interfered with a similar exercise at Bank of Ireland.

"It was amazing how responsive the US system was to the lobbyists. Almost immediately we started to receive messages from the US demanding that we should engage with these bondholders," Mr Cardiff writes in Recap: Inside Ireland's Financial Crisis.

“I was so concerned by this I sent an usually strong email to a senior official in the Treasury Department, with whom I had a lot of previous dealings, followed by a detailed phone call.

“I pointed out that Aurelius were holding up a very important capital raising, and failure to complete that would have broad financial stability implications beyond Ireland.”

Mr Cardiff said he also pointed out that the Irish public “held the US at least partly responsible for not being able to let senior bondholders take losses, at considerable cost.”

This was in an implicit reference to objections raised by the then US treasury secretary Timothy Geithner to previous efforts to impose losses on senior bonds in the defunct Anglo Irish Bank.

Subordinated bondholders

The book says the Irish public “would hardly be pleased to hear that the US was also now interfering” with losses being imposed on subordinated bondholders. “I got a helpful response from the Treasury official, and whether because of him or otherwise, we had little subsequent pressure from the the US government, despite the lobbying.”

Mr Cardiff says Aurelius ultimately settled “for the same terms as the other bondholders, and payment of their costs”.

He says credit is due to colleagues in the department and the attorney general’s office for holding the line against Aurelius “sometimes despite advice that they be bought off”.

In a footnote to this account, he says Irish diplomats in Washington heard “what was being said to members of Congress through their own contacts”.