MINISTER FOR Finance Michael Noonan is stepping back from his plan to impose losses on senior Anglo Irish Bank bondholders after European Central Bank chief Jean-Claude Trichet warned him that such a move would damage Ireland’s standing in the markets.
Mr Noonan held talks for 30 minutes on Saturday morning with Mr Trichet, who has long resisted any manoeuvre to impose losses on senior bank creditors. The Minister said it was not for him to close the senior bond question, but said he was obliged to observe advice from people such as Mr Trichet.
He said there was no discussion in the talks about a call last week for swifter budget cuts in Ireland from outgoing ECB executive board member Jürgen Stark. The Government will continue to target a budget deficit of 8.6 per cent next year “or slightly below”.
Saying the Government was unlikely to seek voluntary burden-sharing with senior Anglo bondholders, Mr Noonan went on to say the ECB chief had made “fairly good arguments” against any coercive measures to impose losses on such investors.
“I said it was outstanding business, and he said the situation in effect in terms of that had disimproved for two reasons,” Mr Noonan told reporters in Wroclaw, Poland, at the end of a two-day meeting of EU finance ministers.
“First of all that private sector involvement in Greece had a very quick knock-on effect into Italy and Spain and private sector involvement didn’t seem to be the way forward if you were trying to encourage the markets,” the Minister said.
Secondly, he said Ireland had done particularly well over the summer and mentioned the narrowing of bond spreads. He said anything to do with burden sharing might knock the confidence of the market and the spreads would go back out again and that we might lose the ground we had gained.
Mr Trichet declined to comment on his meeting with Mr Noonan.
Asked if the senior bond question remained open, the Minister said the Government would reflect on Mr Trichet’s views and a similar stance adopted by EU economics commissioner Olli Rehn.
“It’s not for me to close it but . . . I know what happened in Italy, the difficulty they go into.
“I’ll put it to you this way, the amount of money outstanding in unguaranteed senior bonds in Anglo is just about €3 billion. If you did some kind of voluntary burden sharing you might gain €100 million, which seems to me that one wouldn’t risk guarantee for that level of money.
“One wouldn’t risk reputation for that. Anything coercive, the European authorities are dead set against it. So we’ll reflect on it.”
Mr Noonan said his priority in relation to Anglo now was to seek longer maturities and a lower interest rate on the promissory note loans used to recapitalise the bank. He brought up this matter with Mr Trichet, but there was a “pretty non-committal” response.
On a separate matter, the Minister said there was evidence that retail deposits in Irish banks are increasing. “Irish depositors stayed in . . . it’s moving in the right direction since we recapitalised.”
