Nationwide issues €4bn in bonds to itself


IRISH NATIONWIDE:IRISH NATIONWIDE has issued €4 billion of Government-guaranteed bonds effectively to itself. It can use the bonds to draw €4 billion in funding from the European Central to help tide it over a key refinancing period later this month.

The building society has €4 billion of debt covered under the original blanket Government guarantee maturing at the end of this month. The bonds will allow the building society to draw fresh funding from the ECB if necessary to repay this debt against a backdrop of heightened funding pressures across the guaranteed institutions.

A spokesman for the building society insisted Irish Nationwide had sufficient cash to repay €4 billion of guaranteed debt which must be repaid later this month.

He said the listing of the bonds was to “improve the liquidity of Irish Nationwide” ahead of the building society shrinking radically as a consequence of the transfer of €9 billion in loans – more than 80 per cent of its loan book – to the National Asset Management Agency and the receipt of Nama bonds to improve liquidity.

It is understood that Irish Nationwide will start drawing ECB funding using the bonds as short-term collateral this week and will refinance the debt with Nama bonds as they are issued before all loans are transferred by February.

In what was described as an unusual move by markets sources, Irish Nationwide has listed the bonds but not sold them to investors and they remain on the balance sheet of the building society.

The bonds were listed under the building society’s so-called “global medium-term note programme” with a maturity of six months.

The timing allows the society to use ECB funding now to tide Irish Nationwide over the end of the year when the extended Government blanket guarantee expires.

Michael Cummins, a director of fixed-income specialists Glas Securities, said it was unclear how Irish Nationwide would issue the bonds to draw ECB funding in order to repay debts maturing this month. However, retaining them on the building society’s balance sheet “would not be standard practice”, he said.

One bond analyst said he had never seen a funding transaction structured in such a way, describing it as “a type of micro-quantitative easing” – a means of allowing a central bank to print money to support an institution.

“You could say it is innovative in some respects – it gets them through the September 2010 refinancing,” said the analyst.

A spokeswoman for the Central Bank said it did not comment on loan facilities given to institutions.

“Where an asset class is eligible for ECB borrowings, the Central Bank will provide funding on behalf of the Eurosystem, in accordance with the rules and procedures agreed by the Eurosystem,” she said.