More than half of Irish bank bonds held by investors in Republic

Scofflaw wrote: »

He might be omitting it because there's no evidence that that's the case - you could equally claim that the international bonds are being held for Irish residents.

On the contrary, we know that the bonds held in Ireland are mostly held by Irish banks, sometimes even by the same banks that issued them: http://www.irishtimes.com/newspaper/finance/2011/0217/1224290024749.html



In case it's not clear what's happening there (a reasonably likely case):

1. Irish bank issues bonds guaranteed by the government

2. it takes up the bonds itself

3. it goes to the ECB and says "hey, look, I have these government-guaranteed bonds to use as collateral for a loan"

4. it borrows from the ECB - at lower rates than the Central Bank offers

cordially,
Scofflaw

And here was me thinking it was Irish pension funds and IFSC domiciled entities. :rolleyes:

Is there any rules against that ?
Is it not some form of self trading thingy ?
Ah but shure this is Ireland where insider trading and company share support schemes are par for the course. :rolleyes:

And I wonder why my pension dropped so much. :eek:

jmayo wrote: »

And here was me thinking it was Irish pension funds and IFSC domiciled entities. :rolleyes:

Is there any rules against that ?
Is it not some form of self trading thingy ?
Ah but shure this is Ireland where insider trading and company share support schemes are par for the course. :rolleyes:

And I wonder why my pension dropped so much. :eek:

I'm not sure what one would be ruling against. It's not possible to rule against banks buying their own bonds - after all, we want the banks to buy back their bonds at a discount, because it saves us money. And if the banks don't tap the ECB for loans, they have to tap the State - government or Central Bank - so I can't see why the government would want to stop it happening.

After all, if we think about it, what it means is that the Irish banks are able to tap a deep source of cash at far lower than market rates through this mechanism. That helps keep them viable running, at the cost of the government guaranteeing their debt - but since the government has to agree to guarantee each issuance separately under the current guarantee (ELG) they do have control over the use of the mechanism.

cordially,
Scofflaw

It should be mentioned that, under EU law, all EU bond holders of any given class of bond must be treated exactly identically. In other words, you can only "burn" a German or British senior bond holder if you are going to burn an Irish senior bond holder under exactly the same terms and conditions.

And, of course, for non-EU bond holders, it might help if we knew that who they are - if the bonds are being held by US MNCs with major operations in Ireland, they might decide to "burn" us back by departing for other fields...

Regardless of where the bondholders are from why should the irish taxpayer be bailing them out they gambled they lose! Its quite convenient that nm rothschild is one of the main economic advisors to the government and they are one of the banks biggest bond holders its all about protecting the rich at the expense of the less well off!

If most of the bondholders are indeed Irish and not French or German, where does that leave the following touted and apparently leaked Anglo bondholder list?
http://order-order.com/2010/10/15/anglo-irish-bondholders-should-take-the-lossesis-the-ecb-forcing-ireland-to-protect-german-investments/

Of course the authenticity of such a list is undoubtedly questionable, nonetheless the first few entries on the list do if I recall correctly co-incide with the few names David Norris read out in the Seanad late last year. Regardless that's just Anglo, and not the others.

Scofflaw wrote: »

That's the same writedown as Deka suffered, and Deka are on the list (because they're German), with a bond coupon from the same issue as Wexford's, while the Wexford Credit Union isn't. The list, therefore, has been carefully filleted of any Irish names.

So we know that the list is a mix of different types of debt, some of whom were burned, and that the list is deliberately void of Irish names. It was leaked in the run-up to the bailout, and it was leaked to someone who could be counted on to take the right angle - that a European bailout was being forced on Ireland for the benefit of European banks.

Goodness, I wonder who might benefit from that? They'd need to be the kind of people who weren't afraid of a little media manipulation. I'm sure the name will come to me in a minute...

cordially,
Scofflaw

The list definitely appears to be edited to convey an impression and probably to save a lot of blushes as well.

There may well be other credit unions, like Wexford Credit Union, who made similar investments.
If their identities became public it could well have an adverse effect on ongoing credit union business in this example.

SkepticOne wrote: »

This is a separate issue to that being discussed but the argument is that we need to be prepared to do it should the renegotiation of the bailout deal fail.

It is scarcely a separate issue - if we can't borrow, then the consequences won't be pretty.

Anyone advocating default should be prepared to spell out the 19 billion in cuts they would be willing to make. If not, they are basically so dishonest, they could be running Anglo Irish...

kenrr wrote: »

I'd agree with you on the moral issues but, as far as I can see, burning bondholders is overwhelmingly a cut-off-your-nose-to-spite-your-face problem.

Looking at Irish domestic banks included in the "guarantee" and rounding off figures wildly to give an order-of-magnitude feel for the situation there's 300bn of Irish domestic deposits; 150bn of overseas deposits; 30bn of Irish domestic held bonds; 30bn of overseas held bonds. Assuming assets are only about 60% of liabilities and everybody gets burned 40% it means Irish depositors lose 120bn; overseas depositors lose 60bn; Irish bondholders lose 12bn; overseas bondholders lose 12bn.

Is it really worthwhile to burn overseas bondholders 12bn if it costs Irish depositors 120bn? Where would the Government find the 10's of billions required to payout the guarantee for Irish domestic depositors? Borrowing from the market and/or EU would not be an option.

You can distribute the money differently, but a major problem is that whichever way you do it it leaves a very large hole in the taxpayer's pocket. I posted this on another thread, but it seems relevant here - a slightly more detailed version of your point:

Shortfall|304.43|Haircut|Savings|Govt Losses|Bank Losses|Investor Losses|Foreign Losses|Private Losses
||||||||
Senior Secured|21.8|0%|0|||0||
Guaranteed|16.16|0%|0|||0||
Senior Unsecured|15.4|25%|3.85|||3.85||
Other|6.05|90%|5.45|||5.45||
||||||||
MFI Deposits|131.54|100%|131.54||131.54|||
Govt|3.41|0%|0|0||||
Private|157.1|25%|39.28|||||39.28
Euro|16.22|25%|4.05||||4.05|
RW|121.07|25%|30.27||||30.27|
||||||||
Cap & Res|63.52|50%|31.76|31.76||||
non-res|7.84|100%|7.84||||7.84|
||||||||
Rem Liab|69.64|50%|34.82|34.82||||
non-res|13.61|25%|3.4|||||
||||||||
ECB|94.55|15%|14.18|||||
||||||||
Totals|737.9||306.44|66.58|131.54|9.3|42.16|39.28

cordially,
Scofflaw

SkepticOne wrote: »

Except that all these losses you talk about have already been borne by the Irish state through the original guarantee scheme and subsequent nationalisations. We have already lost everything you say Irish depositors would lose plus we've lost what would otherwise be the losses of bondholders. Lenihan thought the original guarantee scheme cost the state nothing and I think some here are making the same mistake.

Last time I looked I don't think the bill was anywhere near that high. Do you have a source for the bailout bill being north of €120bn?

cordially,
Scofflaw

SkepticOne wrote: »

I can't vouch for the accuracy of kenrr's figures but assuming they are accurate then that is the amount we'll end up having to put into the banks to bring them into the black were we to do so without allowing any lender (senior or junior) or depositor to take a hit. As soon as we made the blanket guarantee the State effectively took on this burden.

Brian Lenihan shortly after the guarantee was put in place quipped that it had cost the State nothing and that it was the cheapest bailout to date. I think you make the same mistake here. There may have been no money transferred at that point but it did cost the State money and this was reflected in future borrowing costs.

So getting back to kenrr's figures. If the total liabilities are 300+150+30+30 = 510 billion and kenrr is correct that this is only balanced by 60% (= 306 Bn) of assets, then the state, in trying to protect everyone, is in the hole for 210 billion.

I suppose you could add on to that the amount we've already put in in the form of recapitalisations already performed + the cost of NAMA etc to get a feel for the total cost of the banking crisis to the country. Perhaps you could supply those figures so they can be added on.

Some of that is the table in my post - a distribution of how you can spread that €305bn shortfall over the various different creditors. As you can see, the State isn't actually in the hole for €210bn, but it depends on how we spread the losses.

It's worth pointing out, in respect of your other point, that much of the money put in to the banks is listed in the banks' liabilities sheets as "capital & reserves" - adding that money to the amounts already spent recapitalising the banks would be counting it twice.

I'm not sure NAMA should be added in, because it has a different set of assets, and it's a revenue earner. NAMA bought €71.2 billion of loans for €30.2 billion by the end of 2010 and it expects to buy another €5 billion as soon as 'is practicable'. The money 'paid' by NAMA is in the form of NAMA bonds, and those are held by the banks, so those are listed amongst the banks' assets. Winding up NAMA in a hurry would produce a set of fire sales, which would result in there being a hole in NAMA which would then transfer to the banks, damaging their assets and increasing the debt load. However, if you were going to liquidate the banks, you'd actually look at being able to sell the NAMA bonds for at or close to face value, since they've already been through a fairly harsh haircut process.

I don't know whether 59% is the right figure for the Irish banks - kenrr and my reason for using it is simply that it's the same as the Danish bank that just went down. I appreciate that people like to wave their arms around and talk about a mortgage default tsunami, but current mortgage arrears levels for 360 days+ (the standard proxy measure for default risk) are pretty low. If we took a 10% default rate, that's only providing €24bn of our €304bn hole in the banks, assuming no value is recoverable in those cases.

cordially,
Scofflaw

hinault wrote: »

€107 billion is the total value of loans outstanding for residential property on the lending institutions books.

If 10% is the current mortgage default percentage, well you can do the math yourself.

Current rate is, I think, closer to 2% for the Irish domestic banks. Banks like BoSI seem to have higher rates.

cordially,
Scofflaw