NCB analysis provides some clarity on government's options re bondholders

Posted on Monday, 14 February 2011

NCB have published a very interesting analysis of the future for Irish bank senior bondholders.  It shows there are almost €75bn in bonds held currently by the Irish banking system.  A substantial proportion of these (almost €25bn) are either subordinated or unsecured. The NCB analysis points out that the Irish banks would be illiquid and insolvent if it were not for the Irish State and Irish Cental Bank.  It goes on to argue that:

  • Subordinated bondholders should clearly share the burden of the Irish banking crisis.
  • The general consensus is that the senior unsecured bondholders should also share the burden of the banking crisis.

The analysis goes on to point out that the European Central Bank does not want senior bondholders touched. Where does this leave the Irish Government? The analysis sets out a number of options. It concludes that the most likely outcomes will involve the following:

  • Subordinated debt will be bought back at a discount in all the institutions except Irish Life and Permanent, where it is less clear cut.
  • A non‐core (NAMA like) vehicle will be established with the input and backing of an supra‐national
  • The EU/ECB will, like the Irish State, make a distinction between viable and unviable banks and allow
    senior debt restructuring in the latter.
  • Anglo Irish and Irish Nationwide senior unsecured debt will not be repaid in whole, with either a
    coercive debt buyback or gradual repayments as and when assets are realised.
  • The government will not move coercively against Bank of Ireland senior unsecured debt.
  • Quite frankly with regard to AIB it is too difficult to take the view that the senior unsecured debt won’t
    be moved against. AIB is already 93% owned by the State and requires a further €4.7bn even before
    the next stress test has been carried out. We believe the new government would like to move against the senior unsecured bondholders in AIB but it may be a bridge too far for the ECB/EU.

The Full text of the NCB analysis can be downloaded here