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Dublin: 12 °C Saturday 1 November, 2014

Will the European Central Bank support Noonan’s bondholder burning?

One analyst warns that if the government imposed losses on senior bond holders, no Irish bank would be able to access the market for years.

Michael Noonan
Michael Noonan
Image: Cathal McNaughton/PA Archive/Press Association Images

IRELAND’S ATTEMPTS TO impose significant losses on senior bondholders in Anglo Irish Bank and Irish Nationwide Building Society are likely to be rejected by the European Central Bank (ECB) when the government raises the issue in the autumn according to one report today.

But another indicates the ECB may be in a more conciliatory mood depending on the identity of such bondholders.

Minister for Finance Michael Noonan’s proposal to impose losses on senior bonds is likely to be resisted by those in Frankfurt, according to the Irish Times.

Today it quotes one source as saying :

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.

However the print edition of the Irish Independent reports that the ECB has “softened its stance” on Noonan’s plan, announced in Washington on Wednesday.

It reports that sources in Europe indicate that if the debts owed to the two banks were to financial market speculators who buy distressed companies and not traditional bank investors then there would be a case for easing the rules.

It is widely thought that Noonan’s move caught officials at the ECB off guard with some reports that even members of his own cabinet were unaware of his plans to announce the so-called burning of the bondholders.

Around €750 million of the €3.8 billion owed on senior unsecured unguaranteed bonds by both Anglo Irish and Irish Nationwide Building Society is due to be repaid on 2 November.

The Irish Times adds that losses will be imposed on these defunct institutions but every “last red cent” of the debt owed by the Government and the pillar banks of Bank of Ireland and AIB would be repaid according to Noonan.

The reports of Noonan’s intention to impose losses on senior bondholders have not gone down well internationally with one credit analyst at a major UK bank telling the Telegraph:

If they go ahead with this, no Irish bank will be able to access the markets for years.

There is no way you can burn senior debt holders and expect to come back to the bond markets shortly afterwards.

Reuters reports that there is some who believe the move may have been a political manoeuvre given it was the government’s 100th day in office yesterday.

It also notes that Tánaiste Eamon Gilmore said at yesterday’s press conference to mark 100 days that Ireland would not move to impose losses on senior bondholders without the approval of the ECB and added that the government had not yet raised the issue with Frankfurt.

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