Wednesday, 15 June 2011

Credit jitters - Market Update on Ireland - the game is changing

Big sell-off in late afternoon on Irish Banks senior debt thanks to the comments from the Finance Minister:

"Finance Minister Michael Noonan has said Ireland will go to our European partners with a plan to impose significant losses on the senior bondholders in Anglo Irish Bank and Irish Nationwide Building Society.

He was speaking in Washington after meeting the IMF and the US Treasury Secretary Timothy Geithner.

Mr Noonan said the Government will seek to impose losses on senior bondholders in Anglo Irish Bank. He said that around €3.5 billion in senior unsecured, unguaranteed bonds issued by Anglo Irish Bank and Irish Nationwide Building Society should have losses imposed on them.

Mr Noonan said he had discussed this with the IMF, who supported the strategy.

The Finance Minister said these banks are no longer normal entities and are more like warehouses for bad debts. In that context, he would be going to our European partners to propose significant cuts in the money to be paid to the bondholders.

Mr Noonan also revealed that he had asked Mr Geithner to support Ireland's effort to cut the interest rate paid on the European parts of our bailout programme. He said Mr Geithner agreed to support Ireland's effort and would speak to the French in connection with this."

Senior bonds for both entities got whacked after these comments:
Source: the market...

Anglo Irish has 3.1 billion euros in unsecured senior bonds not covered by a state guarantee.
Irish Nationwide Building Society, (which by the way is being merged with Anglo Irish), has 601 million euros worth in unsecured senior bonds not covered by the state guarantee as well.

Both have already cost 35 billions euros worth of bailout funds courtesy of the Irish taxpayer.

Ireland seeks to go after Anglo's senior bondholders - Reuters
From Reuters:
"No euro zone government has imposed losses on senior bank bonds, which are ranked on a par with depositors, but senior unsecured debt amounting to 320 million euros was subjected to a 41.2 percent haircut when Danish bank Amagerbanken failed in February."

The game is changing.

Meanwhile all is not well at Bank of Ireland either:

Shareholder Anger Erupts At Bank Of Ireland Meeting - WSJ

"The bank, which is already 36% owned by the Irish government after receiving EUR3.5 billion in bailout aid, needs EUR5.2 billion more in capital and new buffer reserves, mainly to make good lending excesses during the boom years."

I wrote in December 2010 in Europe - The end of the Halcyon days that:
"Either bondholders of Irish banks debt agree take a haircut on both the sub and senior debt, or the Irish Goverment will have to cut more spending, which means more austerity for the Irish people."

We have reach that point.

Portugal and Ireland drifting wider still:
Source CMA

French banks as well today have been put under pressure by the rating agencies due to their exposure to Greek debt.
Moody's Investors Service placed the three largest French banks on review for a possible downgrade.
The three banks are:
BNP Paribas, down 2.55%.
Credit Agricole, down 2.49%.
Societe Generale, down 2.48%

French banks CDS wider on Moody's rating threat:
Source CMA

EUR/USD is down 2% today on these news to around 1.4165:

Itraxx 5 Year Financial Senior CDS was wider today by 16 bps at around 178 bps whereas the Itraxx 5 Financial Sub widened by 26 bps, market being around 304-310, 6 bps bid-offer spread...ouch.

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."
Henry Ford

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