EU COMPETITION commissioner Joaquín Almunia has offered support for the notion of a renegotiation of debt issued by nationalised Irish banks but did not tackle directly the question of senior debt.
While Minister for Finance Brian Lenihan was quoted by the Financial Times saying he would support Anglo Irish Bank and Irish Nationwide Building Society (INBS) if they entered “amicable discussions” on their senior debt, the Government insists its policy of not compelling first-tier bond-holders to accept losses has not changed.
“Can there be discussions between banks and senior bondholders for mutual advantage?
“Of course there can be. [I would encourage them] if it is for mutual advantage, yes,” the Minister told the newspaper.
The question is highly sensitive because any decision to impose losses on senior debt-holders could anger investors who also hold Irish sovereign debt and who might participate in future bond auctions.
When asked yesterday about the Minister’s remarks, Mr Almunia’s spokeswoman did not comment on the particular issues that arise in relation to senior debt. “As a rule, vice-president Almunia supports initiatives that go in the direction of fair burden sharing because that reduces the amount of State aid and, therefore, the distortions of competition,” she said.
“It also addresses the very important issue of moral hazard.”
She went on to say that Mr Almunia had already noted positively Mr Lenihan’s previous statement “that subordinated debt holders would make a significant contribution towards meeting the costs of the restructuring and resolution of Anglo Irish Bank.”
The commission awaits details on the plan for Anglo Irish and has no further comment at this stage, she added.
In the Government’s new plan for Anglo, the bank is to be divided into “funding” and “asset recovery” banks before being wound down in the medium-term.
The Financial Times report noted Mr Lenihan was emphatic that the legislation to impose burden-sharing on subordinated bond-holders would not deal “under any circumstances” with senior bond-holders, a point stressed again yesterday by the Minister’s spokesman.
“The position is that under Irish law, senior debt obligations rank equally with deposits and other creditors,” the spokesman said.
“There is, therefore, no question of seeking to impose losses on holders of such senior debt in Anglo Irish Bank or indeed in any credit institution in the State through any legislative measures,” he said.
In the main, any voluntary negotiation with senior debt-holders would involve swapping short-dated bonds for longer-dated ones to help ease financial pressures.
Such measures are typically adopted on a voluntary basis to ensure that there is no default for products such as credit default swaps, a form of insurance against default.
