#Open journalism No news is bad news

Your contributions will help us continue to deliver the stories that are important to you

Support The Journal
Dublin: 17°C Thursday 16 September 2021

European Central Bank must agree to Noonan's proposal to burn senior bondholders

The International Monetary Fund has backed the move to burn over €3 billion worth of loans but what line the European Central Bank will take is much harder to predict.

Noonan with the vice president of IDA Ireland, John Conlon on the New York Stock Exchange yesterday.
Noonan with the vice president of IDA Ireland, John Conlon on the New York Stock Exchange yesterday.
Image: Richard Drew/AP/Press Association Images

MICHAEL NOONAN’S PLEDGE to try and burn senior bondholders at Anglo Irish Bank and Irish Nationwide Building Society will need to be agreed to by the European Central Bank (ECB).

The Minister for Finance yesterday announced plans to impose “substantial” losses on senior bondholders with the two banks in a significant policy reversal.

He was speaking during his four-day visit to Washington where he yesterday met with top International Monetary Fund (IMF) officials and the US Treasury Secretary Timothy Geithner.

Noonan revealed that he had the support from top officials at the IMF in Washington but added that the difficulty was “what attitude the European Central Bank may take”, reports the Irish Times.

The European Commission has said it will examine any proposal by the government on the restructuring of the banks with the ECB and the IMF. The bank itself did not comment but the paper notes it did oppose so-called burden sharing with senior bondholders at Irish banks during last year’s bailout talks.

The minister has said that Ireland will seek to impose losses on the senior bondholders at the two financial institutions, targeting around €3.5 billion in bonds issued.

Speaking yesterday in Washington, Noonan outlined his reasoning behind such a proposal:

You can’t put your money on deposit with Anglo Irish. You can’t get a loan from Anglo Irish.

So the only thing that gives it the name of a bank is because it has a banking licence and it needs the banking licence to access some monies from the [Irish] central bank.

So I said as far as I’m concerned this is not a real bank, this is a warehouse.

His comments have raised fears that “haircuts” could be imposed on bondholders across the eurozone and leave banks holding large losses, according to the Financial Times.

One strategist told the newspaper that such a move could be a “game-changer” with another senior bond trader telling the paper that the move was a non-starter, given that the ECB didn’t agree to it when the deal was signed last November and was unlikely to do so with the euro crisis worsening.

Noonan will have to try and persuade European banking officials of his argument that both banks are not in fact banks at all but he acknowledged to reporters that this would be difficult, the Irish Independent reports.

“The difficulty is what attitude the European Central Bank may take. It’s hard to predict that,” the Minister for Finance added.

About the author:

Hugh O'Connell

Read next:


This is YOUR comments community. Stay civil, stay constructive, stay on topic. Please familiarise yourself with our comments policy here before taking part.
write a comment

    Leave a commentcancel