Debt for Equity swap

Whiskeyjack

First of all, apologies if this question has been posted before. Here's a quote from David McWiliams latest:

The honest thing to do is to realise what the problem is (the banks) and admit that pouring further cash into those black holes is theft — from either the Irish taxpayer if we pay the loans back or from the IMF/EU if we default on their loans. The honest thing to do is pass a bank resolution which swaps the debt for shares — a debt-equity swap in the banks — and get that €120bn liability off the national and international balance sheet.

My question is - would this work and how possible would it be to put in place?

gollem_1975

yes.. whats the deal with this "less painful" debt-equity solution that DmcW, KWhelan and a few others have suggested.

does he mean that we offer the ECB equity in the banks in exchange for the money they owe it ?

and/or

does he mean that we offer the bond holders equity in the banks in exchange for the money they owe it ?


would debt/equity swap be this effectively a less offensive word to describe the same outcome as a default ?

is it a viable solution/alternative to availing of the IMF/ECB bailout ?

Amhran Nua

Whiskeyjack wrote: »

My question is - would this work and how possible would it be to put in place?

Yes and very. Its no longer a question of should it be done but when it should be done, and it should have been done from day one. The staggering combined incompetence of Lenihan, Cowen, and the civil service have delayed it a bit, but at the end of the day we will not be held accountable for the mistakes of foreign banks and investment companies.

Leiva

Keeping It simple ....

If a bank (German bond holders) invests billions in say Anglo , surly they are investing in the Bank and not the citizens of the State the bank resides in ?

Where in the small print of the loan does it say ...
"Your citizens are your guarantor , failure to pay all debt gets transferred to same ".

If a Bank invests in a bank , and bank fails then let lender bank take over failed bank .

I'm I too simplistic in my view ?

Like how does not paying a Bond Bank dilute your soverign loan ability ?

ardmacha

Olli Rehn on the radio this morning talked about taxpayers sharing the burden with bondholders. Which is a very welcome direction for discussion to be moving in from my perspective, as a non bond holding taxpayer.

sunshinediver

mixednuts wrote: »

Keeping It simple ....

If a bank (German bond holders) invests billions in say Anglo , surly they are investing in the Bank and not the citizens of the State the bank resides in ?

Where in the small print of the loan does it say ...
"Your citizens are your guarantor , failure to pay all debt gets transferred to same ".

If a Bank invests in a bank , and bank fails then let lender bank take over failed bank .

I'm I too simplistic in my view ?

Like how does not paying a Bond Bank dilute your soverign loan ability ?

You're correct, However our Government decided to nationalise Anglo, thus making any of Anglo's problems automatically become those of the Irish citizen.

sunshinediver

ardmacha wrote: »

Olli Rehn on the radio this morning talked about taxpayers sharing the burden with bondholders. Which is a very welcome direction for discussion to be moving in from my perspective, as a non bond holding taxpayer.

I would agree, i've also heard various rumblings on that note coming from various sources, unfortunately none of which have been the Irish Government.

However i'd be seriously surprised if the government entertain this. I think the EU/IMF would have to force them to make the bond holder take accountability. Any government with any sort of respect for its citizens would be exploring these issues.

gizmo555

sunshinediver wrote: »

You're correct, However our Government decided to nationalise Anglo, thus making any of Anglo's problems automatically become those of the Irish citizen.

Not necessarily. If I'm the owner of a limited liability company, such as Anglo, the company's liabilities are not my personal liabilities. This is precisely the point of limited companies.

The state guarantee to the banks' senior bondholders will simply have to be allowed lapse when it expires in June 2011. That is a hugely important point - the guarantee that the government has given is not open-ended and indefinite. A new government - which we will have by June - can withdraw or modify it.

gollem_1975

I would be concerned as to what impact a debt/equity swap would have on

1) the safety of deposits
2) Irelands ability to borrow

Is mentioning a debt/equity swap something people are suggesting is something we can do now or something that we should have done in september 2008 as an alternative? ( remember that DMcW actually did hail the bank Guarantee when it was first introduced )

I expect that the bondholders will not be paid in full. some arrangement will be made.

Am I naieve in suggesting that the bondholders (european banks I'm guessing) we would be "forcing" the debt equity swap on also in bad shape.

by us defaulting we are going to cause problems for other banks in europe and they in turn will cause problems for other banks ( referred to contagion afaik ) thus threatening the whole european project/currency etc.

I don't want Ireland to be the country that brought this project down.

I would prefer that we deal with this issue in a way that doesn't collapse the system and make us the north korea of Europe ( though some would probably like that ).

I think we should take the bailout( assuming we get a favourable interest rate circa 5%), make the necessary expenditure cuts/tax raises, impose the necessary efficiencies in public sector, kick the current government out on its arse in january and deal with the bondholders later.

Scofflaw, what say you ?

Cordially,

Gollem

Sea Sharp

As has been said before, debt for equity is just a fancy default.
The EU needs to print money to purchase the toxic property. Currency devaluation ensures that the cost of fixing this mess is spread out to anyone holding Euro currency as opposed to Irish or Spanish tax payers

gollem_1975

Sea Sharp wrote: »

As has been said before, debt for equity is just a fancy default.The EU needs to print money to purchase the toxic property. Currency devaluation ensures that the cost of fixing this mess is spread out to anyone holding Euro currency as opposed to Irish or Spanish tax payers

yeah , from a non-financial expert POV I was thinking the same

i.e."if it quacks like a duck , looks like a duck etc."

This is a european problem. one of our strengths is that we are part of the european project.

commentators say that we (Ireland) can't devalue our currency because we are members of the euro and surely its technically possible at European level to devalue the euro.

couldn't the ECB bailout itself be seen as an mechanism/tactic/strategy to devalue the Euro.

what other mechanisms can the EU take to devalue ?

weren't low interest rates one of those mechanisms (if so they've already used that one)

Dotsie~tmp

gollem_1975 wrote: »

commentators say that we (Ireland) can't devalue our currency because we are members of the euro and surely its technically possible at European level to devalue the euro.

couldn't the ECB bailout itself be seen as an mechanism/tactic/strategy to devalue the Euro.

what other mechanisms can the EU take to devalue the euro

They dont want to devalue. Not for us anyway. Only when it reaches their door. Who knows what shape we will be in. Pat Rabbite said there were rumours the ECB team were looking Irish state assets as collateral for these supposed contingency loans, if you could believe such a thing. Does that sound like something to do if the loans are to be later converted to stimulus (printed money, devalued euro). If true

Amhran Nua

Dotsie~tmp wrote: »

Pat Rabbite said there were rumours the ECB team were looking Irish state assets as collateral for these supposed contingency loans, if you could believe such a thing.

They'll have more than a default on their hands if they try to pull anything like that.

thebaldsoprano

Amhran Nua wrote: »

Yes and very. Its no longer a question of should it be done but when it should be done, and it should have been done from day one. The staggering combined incompetence of Lenihan, Cowen, and the civil service have delayed it a bit, but at the end of the day we will not be held accountable for the mistakes of foreign banks and investment companies.

Except that'd mean that the bondholders could get access to the bank's books and would be able to see just what Lenihan, Cowen, and the civil service have been up to.

I suspect we're paying an enormous price to keep a few skeletons in their closets and to stop the web of cronyism from unravelling.

gollem_1975

Dotsie~tmp wrote: »

They dont want to devalue. Not for us anyway. Only when it reaches their door. Who knows what shape we will be in. Pat Rabbite said there were rumours the ECB team were looking Irish state assets as collateral for these supposed contingency loans, if you could believe such a thing. Does that sound like something to do if the loans are to be later converted to stimulus (printed money, devalued euro). If true

yes and I can understand why that would be difficult thing to sell to the germans in particular.

however Ireland is only one part of this puzzle. the other PIIGS may/are also in need of help. possibly the new accession states also.

the ECB may in time devalue to prevent contagion from reaching the Rhine , n'est pas ?

State assets as collateral for loans.. hmmm, what assets we talking about, the book of kells ? the ballymun flats ? Bono's cowboy hat

Bob_Latchford

Maybe ESB & semi-states who knows, there is vacuum of information about what the options are and how they would be done in practice

gollem_1975

Amhran Nua wrote: »

Yes and very. Its no longer a question of should it be done but when it should be done, and it should have been done from day one. The staggering combined incompetence of Lenihan, Cowen, and the civil service have delayed it a bit, but at the end of the day we will not be held accountable for the mistakes of foreign banks and investment companies.

my feeling though is that some people think that when == now.

i think we should take the bailout ( assuming its a better rate than the bond markets are going to give us.. assuming that they will give us anything at all )

the bailout isn't conditional on us guaranteeing the bondholders does anyone know.

i mean its not a case of us getting 85billion and transferring it immediately to the "bondholders"... we (the banks and the nation being intricately linked at this stage) need the 85billion to also cover the deficit,probably even to cover deposit guarantee.

then in mid 2011 ** if things still aren't improving can we say ok lads (the bondholders) "50c* in the euro" ..once its less than the euro value I don't really care because as others have said they did take a risk loaning the money in the first place.

** - some date in the future.. i mean no-one has a crystal ball.
*- some arbitrary figure - I'm not a financier

gollem_1975

thebaldsoprano wrote: »

I suspect we're paying an enormous price to keep a few skeletons in their closets and to stop the web of cronyism from unravelling.

why ?

what skeletons ?

if your suggesting that the higher echelons of the civil service are also implicated in this "web of cronyism" as you call it then removing the current government is only the start.

Dotsie~tmp

Amhran Nua wrote: »

They'll have more than a default on their hands if they try to pull anything like that.

My guess is people from the Dept. O Finance are balking at what is happening and leaking. Hard to question the source.

Dotsie~tmp

gollem_1975 wrote: »

my feeling though is that some people think that when == now.

i think we should take the bailout ( assuming its a better rate than the bond markets are going to give us.. assuming that they will give us anything at all )

the bailout isn't conditional on us guaranteeing the bondholders does anyone know.

i mean its not a case of us getting 85billion and transferring it immediately to the "bondholders"... we (the banks and the nation being intricately linked at this stage) need the 85billion to also cover the deficit,probably even to cover deposit guarantee.

then in mid 2011 ** if things still aren't improving can we say ok lads (the bondholders) "50c* in the euro" ..once its less than the euro value I don't really care because as others have said they did take a risk loaning the money in the first place.

** - some date in the future.. i mean no-one has a crystal ball.
*- some arbitrary figure - I'm not a financier

So only half the bill for private bets lands on Irish head. No thanks bud. There is still on way to get ahead of it. Buy up all of it with QE and have bondholder catch some punishment for the inflation a few years down the road. It spreads it wide and far. That might derail German recovery so it wont happen.

Sea Sharp

gollem_1975 wrote: »

State assets as collateral for loans.. hmmm, what assets we talking about, the book of kells ? the ballymun flats ? Bono's cowboy hat

The Nama properties could be considered state assets. I don't see a problem if that's collateral for a bail out.

gollem_1975

Dotsie~tmp wrote: »

So only half the bill for private bets lands on Irish head. No thanks bud. There is still on way to get ahead of it. Buy up all of it with QE and have bondholder catch some punishment for the inflation a few years down the road. It spreads it wide and far. That might derail German recovery so it wont happen.

yeah as I said it was an arbitrary figure..

it could be 0.25c on the euro

it could be 0.1c on the euro for all I care at this point.

one things for sure I won't be at the negotiating table.

I'm suggesting that if we're going to default then why not go large! (i'm not suggesting we default mind you)

Germany is part of the EU too.

German recovery V the failure of the EU and germany gets the blame..

hmm I hope they don't let that happen.

gollem_1975

Sea Sharp wrote: »

The Nama properties could be considered state assets. I don't see a problem if that's collateral for a bail out.

+1

Bob_Latchford

Dotsie~tmp wrote: »

So only half the bill for private bets lands on Irish head. No thanks bud. There is still on way to get ahead of it. Buy up all of it with QE and have bondholder catch some punishment for the inflation a few years down the road. It spreads it wide and far. That might derail German recovery so it wont happen.

The structural problems within eurozone have to be addressed. Any solution needs to cover the whole eurozone.

How can Greece, Ireland compete with Germany within single currency plus mountains of debt. The money is moving to the center from the edges already.

Ok that is because German is more effiecient, better governed and regulated, make better stuff that people want. Whatever. Great for them.

without ability to devalue Ireland cant compete. Printing money seems as good an option as any if we "are all in the euro experiment together" if we are just tied to a Dmark called the euro its not a bright future even if a default/bailout option worked in short term.

gollem_1975

Bob_Latchford wrote: »

The structural problems within eurozone have to be addressed. Any solution needs to cover the whole eurozone.

How can Greece, Ireland compete with Germany within single currency plus mountains of debt. The money is moving to the center from the edges already.

Ok that is because German is more effiecient, better governed and regulated, make better stuff that people want. Whatever. Great for them.

without ability to devalue Ireland cant compete. Printing money seems as good an option as any if we "are all in the euro experiment together" if we are just tied to a Dmark called the euro its not a bright future even if a default/bailout option worked in short term.

good post.

also how can the germans expect the greeks to buy the latest Milatary hardware from them or us to buy their..ahem other exports

we're all europeans now boys!

Dotsie~tmp

Your not getting it. Money isnt being transfered from the centre to the edge. Debt is! The money will be in the form of massive interest payment from the Irish taxpayers pocket to the Central Euros. This is NOT a bailout its debt. Add to that the banks are so wrotten Im sceptical about the principal being collateralised.

Bob_Latchford

I mean money in that in the poker table that is the single currency market German is the better player. Money is flowing to them. Ireland is full of bmw. mercedes audi etc.

The debt moves to Ireland, who then pay interest over and above what German pays. More money moving to the center and debt moving the other way.

Am I still not getting it?

gollem_1975

Dotsie~tmp wrote: »

Your not getting it. Money isnt being transfered from the centre to the edge. Debt is! The money will be in the form of massive interest payment from the Irish taxpayers pocket to the Central Euros. This is NOT a bailout its debt. Add to that the banks are so wrotten Im sceptical about the principal being collateralised.

but if people are already suggesting default now.. why not leave that as our nuclear option for the future and see how this "enormous loan at a favourable interest rate" plays out ?

Bob_Latchford

gollem_1975 wrote: »

but if people are already suggesting default now.. why not leave that as our nuclear option for the future and see how this "enormous loan at a favourable interest rate" plays out ?

I would take the debt if its in anyway manageable, 1% above German 10yr bonds 3.5% imo

Hold off on debt-equity swap for now at least be clear we might do it in future. ie stop digging the hole

Pray we get real change in next election, so we start to compete against the Germans in eurozone

Hope Germany start up the printers and we can inflate some of it away sometime in future (spain?)

Dotsie~tmp

So basically take a hopeful approach? Im not. The global strom of this debt collapse is still raging and far from settled. Small nations need to watch out. Especially when friends arent acting too friendly.

Bob_Latchford

Agree its hopeful but taking the debt now at something manageable will take the heat out of situation. All the other options will be still on the table in a few months.

gollem_1975

Dotsie~tmp wrote: »

So basically take a hopeful approach? Im not. The global strom of this debt collapse is still raging and far from settled. Small nations need to watch out. Especially when friends arent acting too friendly.

again I ask

gollem_1975 wrote:

but if people are already suggesting default now.. why not leave that as our nuclear option for the future and see how this "enormous loan at a favourable interest rate" plays out ?

Dotsie~tmp

gollem_1975 wrote: »

again I ask

What future?? The economy is shrinking hard. Do you believe the growth figures? A structed default will hurt. An unstructured with a smaller economy and massive debt burden will hurt a lot. Now it the time to make our move. On our terms.

gollem_1975

Dotsie~tmp wrote: »

What future?? The economy is shrinking hard. Do you believe the growth figures? A structed default will hurt. An unstructured with a smaller economy and massive debt burden will hurt a lot. Now it the time to make our move. On our terms.

future == tomorrow, the day after and every other day after that.

default now == immediate pain. Not to mention a real up yours delors to our "friends" in europe.

I note that on the front page of the metro we have a quote from jack o'connor saying that the 4 year plan is a "roadmap back to the stoneage"

a default at this stage would be a roadmap back to DeValera and comely maidens at the crossroads.

I'll take my chances with the bailout and the EU thanks.

Dotsie~tmp

gollem_1975 wrote: »

future == tomorrow, the day after and every other day after that.

default now == immediate pain. Not to mention a real up yours delors to our "friends" in europe.

I note that on the front page of the metro we have a quote from jack o'connor saying that the 4 year plan is a "roadmap back to the stoneage"

a default at this stage would be a roadmap back to DeValera and comely maidens at the crossroads.

I'll take my chances with the bailout and the EU thanks.

Well the Irish people will decide on that.

swampgas

gollem_1975 wrote: »

I note that on the front page of the metro we have a quote from jack o'connor saying that the 4 year plan is a "roadmap back to the stoneage"
( ... snip ... )

Off Topic, i know but ...

Somehow I don't think Jack O'Connor will feel much pain in the days ahead.

Both he, other highly paid union leaders, TDs, ministers etc., need to show some leadership and cut their own salaries significantly.

There is a huge credibility problem for those in leadership positions in society when they ignore the issue of their own inflated salaries.

Scofflaw

As has been pointed out, a forced debt/equity swap is effectively a default (most defaults are some kind of unilateral or negotiated debt restructuring rather than just a blank refusal to pay anybody any money). It therefore has many of the same characteristics as a default, in that it becomes very difficult to raise further capital.

I don't really buy McWilliams' handwaving away of any problems it might cause in the bond markets with the pithy claim that they're bullies, and if we "stand up to them" they'll "back down". That's not economics, it's populist clap-trap, and I can't see what it would actually mean in any real terms - that the bond markets would in future be afraid to raise Irish bond rates? Utter rubbish - the bond market rates aren't set by some mean hair-pulling saddo somewhere, they're set at the price at which people are willing to buy. Making people afraid of Irish debt makes them unwilling to buy, and that puts the price up.

As a form of debt restructuring in itself, it's not a bad option, and would almost certainly be more palatable to debt holders than outright non-payment if it comes to default, but the idea that it's something other than default, and somehow avoids all the problems of default, is nonsense. It sometimes seems McWilliams' only use of his economic knowledge is to claim the pitchforks he hands out to the mob are some kind of economist-backed pitchfork.

cordially,
Scofflaw

thebaldsoprano

Scofflaw wrote: »

As a form of debt restructuring in itself, it's not a bad option, and would almost certainly be more palatable to debt holders than outright non-payment if it comes to default, but the idea that it's something other than default, and somehow avoids all the problems of default, is nonsense. It sometimes seems McWilliams' only use of his economic knowledge is to claim the pitchforks he hands out to the mob are some kind of economist-backed pitchfork.

McWilliams aside, I think this would still have been a better option though. We'd likely still have had to ask the IMF for assistence to sort our deficit out, but what we wouldn't have is a mountain of socialised debt generated by private companies. The main reason I can see for not taking this route is that the FF machine got to keep their dealings out of the public eye. As Karlth pointed out in other threads, the local economy in Iceland didn't break down in when they burned the bondholders. Our Government was presumably aware of this option, so why didn't they take it?

fred252

Scofflaw wrote: »

As has been pointed out, a forced debt/equity swap is effectively a default (most defaults are some kind of unilateral or negotiated debt restructuring rather than just a blank refusal to pay anybody any money). It therefore has many of the same characteristics as a default, in that it becomes very difficult to raise further capital.

I don't really buy McWilliams' handwaving away of any problems it might cause in the bond markets with the pithy claim that they're bullies, and if we "stand up to them" they'll "back down". That's not economics, it's populist clap-trap, and I can't see what it would actually mean in any real terms - that the bond markets would in future be afraid to raise Irish bond rates? Utter rubbish - the bond market rates aren't set by some mean hair-pulling saddo somewhere, they're set at the price at which people are willing to buy. Making people afraid of Irish debt makes them unwilling to buy, and that puts the price up.

As a form of debt restructuring in itself, it's not a bad option, and would almost certainly be more palatable to debt holders than outright non-payment if it comes to default, but the idea that it's something other than default, and somehow avoids all the problems of default, is nonsense. It sometimes seems McWilliams' only use of his economic knowledge is to claim the pitchforks he hands out to the mob are some kind of economist-backed pitchfork.

cordially,
Scofflaw

has there been any updates on this topic since november?

regarding your quote above: you seem to be equating investment in irish government bonds with loans to irish banks (even after the bank guarantee runs out). or that investors would have the same confidence in investing in the irish nation as they would in extending credit to privately run irish banks. that would be a sad indictment on this country.

Scofflaw

fred252 wrote: »

has there been any updates on this topic since november?

McWilliams has realised that we have been quietly restructuring bank debt with an accepted high risk of such restructuring (junior and subordinated), and has called for us to noisily restructure bank debt that's generally regarded as not liable to restructuring.

fred252 wrote: »

regarding your quote above: you seem to be equating investment in irish government bonds with loans to irish banks (even after the bank guarantee runs out). or that investors would have the same confidence in investing in the irish nation as they would in extending credit to privately run irish banks. that would be a sad indictment on this country.

Anyone who buys Irish sovereign bonds would be buying into Irish bank debt, since the government now owns all the major banks bar BOI, and it owns about half of that.

In a sense, that was the problem with the guarantee - the government could not afford for it to be called in, so they had to prop up the banks. The problems with the banks turned out to be so bad that the government had bought them out before it could finish recapitalising them. So now we own the banks, and the Irish state's creditworthiness is polluted by the banks' lack of creditworthiness. There are signs that we're coming to the bottom of the pit, but we're still several billion away from it.

cordially,
Scofflaw

fred252

Scofflaw wrote: »

McWilliams has realised that we have been quietly restructuring bank debt with an accepted high risk of such restructuring (junior and subordinated), and has called for us to noisily restructure bank debt that's generally regarded as not liable to restructuring.



Anyone who buys Irish sovereign bonds would be buying into Irish bank debt, since the government now owns all the major banks bar BOI, and it owns about half of that.

In a sense, that was the problem with the guarantee - the government could not afford for it to be called in, so they had to prop up the banks. The problems with the banks turned out to be so bad that the government had bought them out before it could finish recapitalising them. So now we own the banks, and the Irish state's creditworthiness is polluted by the banks' lack of creditworthiness. There are signs that we're coming to the bottom of the pit, but we're still several billion away from it.

cordially,
Scofflaw

does that mean that there's now no way to de-couple the banks debt from the national debt?

Scofflaw

fred252 wrote: »

does that mean that there's now no way to de-couple the banks debt from the national debt?

The only way I can see is for the government to divest itself of the shareholding it now has in the banks - and who the heck would buy the shares?

cordially,
Scofflaw

fred252

Scofflaw wrote: »

The only way I can see is for the government to divest itself of the shareholding it now has in the banks - and who the heck would buy the shares?

cordially,
Scofflaw

i suppose that's what the ginger one is suggesting - to push the bond holders towards a debt for equity swap. aren't the bond holders in the icelandic situation starting to accept this...

Scofflaw

fred252 wrote: »

i suppose that's what the ginger one is suggesting - to push the bond holders towards a debt for equity swap. aren't the bond holders in the icelandic situation starting to accept this...

Does starting a legal action to sue the Icelandic government and reverse their reversal of creditor priority count as 'accepting'?

The Icelandic government has been threatened with legal action by a group of investors in the country's crippled banking system, in a move that could delay efforts to recoup billions of pounds of UK taxpayer funds held on the island.

Bondholders in the three main collapsed banks – Landsbanki, Kaupthing and Glitnir – were relegated behind depositors in the queue of creditors as part of emergency legislation in 2008, which in effect nationalised the Icelandic banking system. The group argue that the government's move was unlawful and any litigation could frustrate the Treasury's efforts to persuade Iceland to reimburse the compensation it paid to British savers after the collapse of Landsbanki's Icesave internet brand. The threat could also hamper efforts by UK local authorities to recoup millions in council tax revenues deposited with Landsbanki and Glitnir.

Tim DeSieno, a partner at Bingham McCutchen, the US law firm representing the bondholders, said: "We may be forced to sue Iceland to reverse 'depositor priority'. The assumptions that inform any Icesave deal then may all go out the window, and any deal to pay the UK would no longer work. We think our cause of action is strong, though it would likely drag through the courts for a lot of years, which itself would be damaging for Iceland."

http://www.guardian.co.uk/business/2010/nov/07/iceland-banks-bondholders-legal-action

cordially,
Scofflaw

fred252

nonetheless they seem to be going that way. this was published a couple of weeks after the article you linked;

http://www.bloomberg.com/news/2010-11-25/kaupthing-creditors-may-get-debt-for-equity-swap-in-a-year-committee-says.html

Scofflaw

fred252 wrote: »

nonetheless they seem to be going that way. this was published a couple of weeks after the article you linked;

http://www.bloomberg.com/news/2010-11-25/kaupthing-creditors-may-get-debt-for-equity-swap-in-a-year-committee-says.html

I did see the 'debt for equity' articles, but it's more a case of the Icelandic government saying that that's what they'll be offered - whether they'll accept it is another matter. I haven't heard that the group mentioned in the article I referenced has decided to drop any attempt at legal action.

cordially,
Scofflaw

karlth

The total loss the foreign banks are facing in Iceland is in the region of 45bn Euros which is around 4x the Icelandic GDP. The banks were declared bankrupt but the state never was.

Some of the senior debt holders might sue the government but it is a hopeless case as the emergency directive (which allowed deposits to have priority above senior debt holders) has been rubber stamped by the overseeing EFTA Surveillance Authority.

The senior debt holders now own 2 of the 3 failed banks.

fred252

i see what you're saying.

has there been litigation of this kind anywhere previously? if it was handled like a regular bankruptcy the bond holders wouldn't stand a chance right? they took a risk investing in these bonds and though luck, it hasn't paid off.

karlth

fred252 wrote: »

i see what you're saying.

has there been litigation of this kind anywhere previously? if it was handled like a regular bankruptcy the bond holders wouldn't stand a chance right? they took a risk investing in these bonds and though luck, it hasn't paid off.

They wouldn't sue because of their loss but because the emergency directive prioritized deposits above senior debt. That meant deposit holders got everything from the failed banks but the debt holders got nothing.

The US government did the same with Washington Mutual. The debt holders got shafted.

fred252

karlth wrote: »

They wouldn't sue because of their loss but because the emergency directive prioritized deposits above senior debt. That meant deposit holders got everything from the failed banks but the debt holders got nothing.

The US government did the same with Washington Mutual. The debt holders got shafted.

i suppose there has been or will be litigation in the case of washington mutual?

karlth

fred252 wrote: »

i suppose there has been or will be litigation in the case of washington mutual?

I don't remember one and I seriously doubt there ever will be.