An 80% Haircut Imposed On Anglo Irish Bank Bondholders

A … Tyler Durden reports on the haircut Ireland is imposing on Anglo Irish Bank bondholders: Anglo Irish Launches Exchange Offer: Sub Debt Holders To Receive 20% On Existing Holdings: Just under €1.6 billion in sub debt (and $200MM in other sub debt) will be converted into around €300 million of new debt paying 3 Month Euribor (which has recently been surging)+ 3.75%. Bondholders, or opt for a cash alternative, have until November 19 to make a decision if they will agree to booking an 80% loss. 

TheGreatPonzi in comment #666992 remarks: “Reuters:  Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) may need as much as $215 billion in additional capital from the Treasury through 2013 to offset losses and maintain a positive net worth, their federal regulator said on Thursday.” This is disgusting. But the Treasury will pay, and the docile taxpayers will pay, even if they need 5 trillion in 2015.”

Caviar Emptor in comment #667022 remarks: “The whole world is looking at precedents. This could be the first domino in the global bank-debt restructuring tsunami.”

B … Shaun Richards reports: Ireland And Her Banks: Anglo Irish Makes A Move On Its Debt Holders: There has been a lot of debate as to what Ireland should do about the holders of subordinated and non-subordinated debt in her banks. For those who have not been following the story Ireland has been forced to pump ever-increasing sums into her banking system but holders of such debt in Irish banks have not been taking their share of the pain. This has to two lines of accusation. The first is cronyism with Ireland’s political system and that does seem to have been evident at times. The second is that other banks in the euro zone are also involved as holders of such debt and some have suggested that in return for EU help Ireland may have promised not to hurt these banks

Either way the failure of bondholders to take their share of the pain has been a feature of Ireland’s difficulties. Yesterday that changed as Anglo-Irish bank offered 5% payment on what is called Tier one or highest risk bonds and 20% payment on what is called Tier 2 or slightly lower risk bonds. This was then added to by a statement which said that there would then be an EGM and if this voted in favour then those who vote against will get nothing at all. As you can imagine this has rather stirred up a hornets nest!

One suggestion is that these “mutually advantageous talks” may be illegal and matters have gone so far that the Irish constitution has been invoked. I am not a lawyer but Article 43 seems relevant although I will be interested to see if any lawyers read this and whether they think that 2 or 2.2 is more relevant here.

In essence the problem here is that such moves should have taken place some time ago as this type of debt is supposed to share in any pain. The allegations of cronyism hit hard here and it is not to the credit of Ireland’s political class as there is already suspicion that some may have been able to exit these bonds at much better levels. To move now whilst its supporters call it “innovative” may indeed be innovative in that it is a sovereign in effect acting in a possibly illegal manner.

Looking at this further there may be another problem. There is a market for credit default swaps or CDS’s and these should be triggered by what is called a credit event and this looks like a credit event to me. To put this another way the whole CDS market is likely to be called into question if investors can be treated in this way without them paying out.

Fears over what all this “innovative” action might cause have led to Irish bond yields rising strongly again and they rose by 0.2% yesterday to 6.5% for her ten-year government bonds. The potential problems include whether investors might avoid Irish debt in future due to fears about being treated in an “innovative” manner. Also it reminds investors again of Ireland’s underlying fiscal problems as the Economic and Social Institute has just published some worrying figures for the future path of the Irish economy which involve estimating a further 4 billion Euros of fiscal austerity in the emergency budget due in November.

C. Bloomberg reports: Bondholder Immunity To Losses Challenged

D … I envision that out of bank bond defaults like those of Anglo Irish Bank where some bond holders are not paid in whole by the national central bank, and out of a continuing falling, FXE,  from 138.78 will result in further stock deflation, and then a stock liquidity crisis will emerge, where there will not be enough buyers for sellers of bonds as well as stocks, causing small business failures and banks to become sorely decapitalized, resulting in the president of the ECB arising to be an “Eurozone credit seignior” and provider of liquidity to Europe.  Despite my report that the Deauville Task Force Fails To Provide A Framework Agreement For European Economic Governance, I also believe that framework agreements will be announced in Europe providing for fiscal federalism giving a whole new meaning to the term European Economic Governance. Yes, I foresee a greater fiscal union. Fiscal federalism will result in the Eurozone evolving into a region of global governance where national sovereignty is a concept of a bygone era.

The word Segnior comes from old English and means top dog banker who takes a cut. Many Europeans will come to trust in him, and conduct their economic affairs through him, as he will oversee all banking, lending, credit and investment throughout the entire Eurozone. The word, will and way of the Seignior will be the law of the Continent.

Keywords: globalcurrencycrisis, angloirish, angloirishbank


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