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€7.3bn: the cost of bailing out unguaranteed bank bondholders so far

While most of the banks’ liabilities are covered by the government guarantee, we’ve been footing the bill for other bonds.

Image: stuartpilbrow via Flickr

THE IRISH TAXPAYER has paid over €7.3 billion so far to investors who held senior bonds in the six State-guaranteed banks – payments not strictly required under the government’s Bank Guarantee Scheme.

Figures compiled by the Central Bank show that the State has footed the extraordinary bill of €7,327,000,000, paying out for the unguaranteed senior bonds of the six institutions covered by the scheme introduced in October 2008.

Just under €1.3bn was paid out to the holders of secured bonds, which are secured on some kind of bank income, while the Irish taxpayer has shelled out over €6bn to date to the holders of unsecured bonds.

Both categories of bonds were specifically excluded from the guarantee scheme, which was intended to bolster confidence in the banking system when proposed by the Fianna Fáil-Green Party government in 2008.

The totals, compiled for a parliamentary question from Wicklow independent deputy Stephen Donnelly, do not include the subordinated bonds of each of the six institutions, for which even more will have been paid out.

Related figures compiled by the Central Bank three months ago showed that the six institutions had almost €21bn in outstanding guaranteed bonds at that time, and another €42.4m in unguaranteed senior bonds.

The State has approved plans from some of the guaranteed banks – all of which are now owned to some extent by the public – to burn the subordinated ‘junior’ bondholders, which account for just under €7bn of the banks’ outstanding liabilities.

Bank of Ireland is hoping to save around €2bn through its own burden-sharing arrangements, while AIB is currently facing a legal challenge from some investors hoping to resist similar haircuts on their junior bonds.

Such moves are likely to save the public up to €4bn in total – though there have been no plans by the State or the banks to default on the payments due to senior bondholders, to whom the banks’ liabilities are a full five times greater.

About the author:

Gavan Reilly

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