STATE-OWNED Anglo Irish Bank has boosted its loss-absorbing capital by €1.67 billion after buying back at a discount bonds with a face value of €3.2 billion.
Investors in the assets, which were trading at heavily depressed prices in the markets, were paid between 27 per cent and 55 per cent of the face value across seven Anglo bonds. The take-up among investors averaged 78 per cent in value terms.
The transactions cost €810 million but generated capital of more than twice this level as the bonds were sitting as a liability on the bank’s books at their face value.
Bondholders paid between 51.77 per cent and 98.4 per cent across seven issues of tier-one and tier-two securities – rankings of debt that sit above pure equity.
The debt buy-back bolsters the capital base of the bank and reduces the State’s exposure to the lossmaking nationalised lender.
“It obviously lowers the amount that taxpayers are going to have to put into Anglo, it is good outcome,” said Anna Lalor, bank analyst at Goodbody stockbrokers.
The buy-back followed a ruling by the European Commission that it halt interest payments on tier-one securities as a condition of the Government’s €3 billion capital injection into the bank.
Banks have taken advantage of the heavy discounts at which their bonds have been trading in the debt markets to improve the quality of capital on their books.
They have been buying back or offering higher-quality bonds in swaps for debt that is regarded by the markets as almost worthless.
Bank of Ireland and AIB have each generated €1 billion in pure capital in debt buy-back and swap deals respectively in an attempt to improve their buffers against losses.
Anglo announced plans to buy back debt weeks after posting a loss of €4.1 billion in the six months to the end of March due to heavy writedowns on property loans. The losses wiped out its capital base, forcing the Government’s €3 billion investment.
Anglo has said it faces losses of €7.5 billion over the three years to September 2011 but has warned these could rise to €11 billion.
