July 27, 2021

Bank Bondholders to Be Paid While Irish Public Howls

The payment is part of Ireland’s effort to shore up Anglo Irish, a state-owned bank now known as the Irish Resolution Bank Corporation, in a rescue that ultimately could top 47 billion euros, or $61 billion.

The European Central Bank put Ireland on notice last week that defaulting on payments to the bondholders could lead to dire financial consequences, the equivalent of a financial “bomb” in the Irish economy, according to Ireland’s transport minister, Leo Varadkar, who made the comments over the weekend on an Irish television program.

But that has not quelled a public debate about whether taxpayers should pay bondholders who bet on investments in a bank that was bailed out and nationalized in 2009 after the collapse of the Irish real estate market. In general, unsecured bondholders reap a higher return because the bonds are not guaranteed and therefore carry a higher risk.

The critics — among them labor unions, opposition parties and a newly formed coalition of social justice groups — are incensed that the corporation is about to pay out more than 1.25 billion euros on Wednesday and then a promissory note payment of 3.1 billion euros in March.

“We think it is irrational and indefensible,” said Mary Lou McDonald, a deputy leader of Sinn Fein, the left-of-center political party. “We take the view that those who take a gamble take a loss when their investments go south.”

“Right now there is a simmering rage that is still mainly below the radar,” she added.

Repayment is a divisive issue because Irish taxpayers face years of austerity to pay for the bailout of Anglo Irish and other Irish banks. Measures include budget cuts like the elimination of hundreds of nursing home beds, teacher layoffs and the closing of rural post offices and police stations.

Ireland’s current government rose to power with pledges to impose losses on bondholders in Irish banks, but it changed course under pressure from the European Central Bank to pay off the bonds.

During a news conference last week, an Irish television journalist repeatedly pressed a representative of the central bank, Klaus Masuch, for a clear explanation of the payout. He answered that it would ensure confidence in the banking sector.

The Irish government also fears that a default could raise borrowing costs for other state-controlled banks and power companies, pushing up mortgage and utility bills.

The identities of the senior bondholders have never been officially disclosed, though critics and some politicians have tried to pry out the information.

Before the crash, bank bonds were often bought by pension funds and insurance companies as a reliable way to earn interest. But after Anglo Irish was nationalized, many of the more conservative bondholders sold their securities on secondary markets at steeply discounted rates.

The corporation says it does not know who the bondholders are. It is making the payment through a clearing system using a bank, which in turn pays the bondholders.

“Such securities are free tradable,” the corporation said Monday, noting that “an issuer does not have access to the records of the clearinghouse.”

A year ago, David Norris, an independent member of the Irish Senate, used parliamentary privilege to read aloud the names of bondholders, including several London financial institutions, before he was ruled out of order. He had drawn his information from Paul Staines, a former bond trader who writes a blog from London under the name Guido Fawkes. Mr. Staines posted a list of bondholder names on his blog, although he did not disclose his source.

“My sense is that the holders of these type of bonds are completely different now, with a much greater sense of risk,” Mr. Staines said.

Bondholders and investment banks are reluctant to talk about Ireland’s repayment. The Institute of International Finance, the leading global banking lobby group, declined Monday to comment on the issue. The group is representing bondholders in negotiations in Greece for write-downs of its bonds.

Article source: http://www.nytimes.com/2012/01/24/business/global/bank-bondholders-to-be-paid-while-irish-public-howls.html?partner=rss&emc=rss

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