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Anglo's Senior Debt: Facts and Opinions


goosebump

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Joined
May 23, 2008
Messages
4,953
Brian Lenihan made a comment on Morning Ireland to the effect that it would be against Irish and EU Law to treat Anglo's depositors and senior debt holders in different ways.

ie

You can't pay back the depositors and not the senior debt holders.

I'm surprised this hasn't been debated more, as it really goes to the heart of the Anglo catastrophe. If he's correct, the only way the next Government could get out of the Anglo stranglehold would be by leaving the EU, which isn't something FG or Lab are going to do.

As things stand, there is €16.5bn outstanding in senior debt (Emmet Oliver claims this is owed to European and UK pension funds Emmet Oliver: Defaulting on Anglo debts now on agenda - Analysis, Opinion - Independent.ie).

There are 3 options in relation to this:

1. Pay up
2. "Renegotiate" it
3. Force a debt-to-equity swap

At 30c on €1, the latter 2 options will save the taxpayer €11.5 on the Anglo bill, which would equate to a €2bn fiscal correction each year for 10 years as opposed to a €3bn correction each year for 10 years (not counting INBS or other recap costs; this relates to Anglo alone).

First off, what Irish and EU law is Lenihan talking about?

Secondly, do posters agree that €11.5bn is realistically the maximum that can be saved by this 'default'?
 


padraig.od

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Jun 30, 2010
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63
Irish law ranks depositors at the same level as senior bondholders. I think the legal phase is pari passu.

Therefore if they attempted to force secured senior bondholders to take 30c on the €1 discount, it would be illegal not to force the same deal on the depositors. Burning depositors (ICB, ECB, credit unions etc) will not happen.

That is my understanding of it anyway.
 

lobby

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Feb 22, 2009
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42
Can it be determined who are the senior bond holders?

Is there a chance that the National pension fund is one of the bondholders??
 

Horses

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May 10, 2009
Messages
127
Am I correct in thinking that most of Anglo debt is secured with property behind it and not simply derivatives so the government will make back some money on the debt in time?
 

turdsl

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Mar 2, 2008
Messages
26,085
Brian is a S.C.putting his own case, I would like to hear a S.C put the case that he is wrong. I believe it has happened elsewhere, it will not happen here because although he has been wrong on most things, he never will admit it, That is our downfall, That is why we will not recover under him.
 

roc_

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Dec 5, 2009
Messages
6,264
Am I correct in thinking that most of Anglo debt is secured with property behind it and not simply derivatives so the government will make back some money on the debt in time?
Perhaps. But we'll likely all be well dead by the time enough time has gone by for another boom to return. Come to that, the property in question will likely be in a state of decomposition, too.

 

adrem

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May 27, 2004
Messages
924
Am I correct in thinking that most of Anglo debt is secured with property behind it and not simply derivatives so the government will make back some money on the debt in time?
eh no. The money going to Anglo and INBS will not be recovered.
 

adrem

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Joined
May 27, 2004
Messages
924
Can it be determined who are the senior bond holders?

Is there a chance that the National pension fund is one of the bondholders??
I thought Bloomberg carried a schedule of senior bond holders?? John Galt or one of them should have access.

NPRF may be a holder - I think they pulled their deposits away from Anglo so probably not. European banks make up the majority and large pension funds.

The yield on senior debt is (or was) similar to the deposit rate so they aren't risk investors (unlike the sub debt guys who received a risk premium)
 

goosebump

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May 23, 2008
Messages
4,953
Am I correct in thinking that most of Anglo debt is secured with property behind it and not simply derivatives so the government will make back some money on the debt in time?
That only applies to the debt assets transferred to NAMA.

The recap money is gone. Will never be seen again.
 

goosebump

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Messages
4,953
Irish law ranks depositors at the same level as senior bondholders. I think the legal phase is pari passu.

Therefore if they attempted to force secured senior bondholders to take 30c on the €1 discount, it would be illegal not to force the same deal on the depositors. Burning depositors (ICB, ECB, credit unions etc) will not happen.

That is my understanding of it anyway.
Doesn't this really do to the heart of the matter?

If true, it means that there are no options re. Anglo.

None. Zero.
 

seabhcan

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Joined
Sep 3, 2007
Messages
14,327
If he's correct, the only way the next Government could get out of the Anglo stranglehold would be by leaving the EU
Eh?

I'm sure Irish law might have something to say on that issue too. If the government tried it, they'd probably lose the case in the high court.

Why not burn depositors too. Could that really be so much worse than the current situation?
 
D

Deleted member 17573

Brian Lenihan made a comment on Morning Ireland to the effect that it would be against Irish and EU Law to treat Anglo's depositors and senior debt holders in different ways.

ie

You can't pay back the depositors and not the senior debt holders.

I'm surprised this hasn't been debated more, as it really goes to the heart of the Anglo catastrophe. If he's correct, the only way the next Government could get out of the Anglo stranglehold would be by leaving the EU, which isn't something FG or Lab are going to do.

As things stand, there is €16.5bn outstanding in senior debt (Emmet Oliver claims this is owed to European and UK pension funds Emmet Oliver: Defaulting on Anglo debts now on agenda - Analysis, Opinion - Independent.ie).

There are 3 options in relation to this:

1. Pay up
2. "Renegotiate" it
3. Force a debt-to-equity swap

At 30c on €1, the latter 2 options will save the taxpayer €11.5 on the Anglo bill, which would equate to a €2bn fiscal correction each year for 10 years as opposed to a €3bn correction each year for 10 years (not counting INBS or other recap costs; this relates to Anglo alone).

First off, what Irish and EU law is Lenihan talking about?

Secondly, do posters agree that €11.5bn is realistically the maximum that can be saved by this 'default'?
Good thread - hope we can all stick to the facts!! Is there not also a need to draw a distinction between senior debt issued by Private Anglo and that issued by Anglo as a state-owned bank? Whatever about defaulting on the former, the latter must surely be regarded as on a par with sovereign debt and any default would be regarded as a Sovereign default. This would further reduce the amount that could potentially be saved by any default.
 

MPB

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Messages
4,465
Brian Lenihan made a comment on Morning Ireland to the effect that it would be against Irish and EU Law to treat Anglo's depositors and senior debt holders in different ways.

ie

You can't pay back the depositors and not the senior debt holders.

I'm surprised this hasn't been debated more, as it really goes to the heart of the Anglo catastrophe. If he's correct, the only way the next Government could get out of the Anglo stranglehold would be by leaving the EU, which isn't something FG or Lab are going to do.

As things stand, there is €16.5bn outstanding in senior debt (Emmet Oliver claims this is owed to European and UK pension funds Emmet Oliver: Defaulting on Anglo debts now on agenda - Analysis, Opinion - Independent.ie).

There are 3 options in relation to this:

1. Pay up
2. "Renegotiate" it
3. Force a debt-to-equity swap

At 30c on €1, the latter 2 options will save the taxpayer €11.5 on the Anglo bill, which would equate to a €2bn fiscal correction each year for 10 years as opposed to a €3bn correction each year for 10 years (not counting INBS or other recap costs; this relates to Anglo alone).

First off, what Irish and EU law is Lenihan talking about?

Secondly, do posters agree that €11.5bn is realistically the maximum that can be saved by this 'default'?
There was something about this referenced on PK this morning. It was not debated, so I do not know if it is true or not, but the law relating to Senior debt relates to an operating Bank and not a failing Bank. ie A Bank going into liquidation is not covered by this law.

How true that is I do not know as I say it was not elaborated on.

It is a good point though and I am surprised if it is true, that Lenihan has not used it before. He said it was also UK law.

Either way I am fair sure the law would apply to the Bank and not the State.

Of course when the State are the owners...

If nationalisation has caused us to be fully responsible for Senior Bonds under law, Lenihan should really be considering his position today.
 

padraig.od

Member
Joined
Jun 30, 2010
Messages
63
Doesn't this really do to the heart of the matter?

If true, it means that there are no options re. Anglo.

None. Zero.
Well, we could change the law, but the change would probably be unconstitutional.

This has bee debated across different threads on irisheconomy.ie for over a year now. This is the latest one I believe.
 

adrem

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Joined
May 27, 2004
Messages
924
Good thread - hope we can all stick to the facts!! Is there not also a need to draw a distinction between senior debt issued by Private Anglo and that issued by Anglo as a state-owned bank? Whatever about defaulting on the former, the latter must surely be regarded as on a par with sovereign debt and any default would be regarded as a Sovereign default. This would further reduce the amount that could potentially be saved by any default.

Don't think that distinction exists. The debt in both cases was issued by the same issuer so they also rank pari passu.

The above is of course semantics becayse debt issued under the "guarantee" is treated differently - but the difference in treatment is due not to the ownership status of the issuer but instead to the existence of a debt guarantee scheme.

I think the legislation that determines senior debt and deposits as being pari passu is the insolvency act(s)

I agree, this is a good thread (thumbs up OP) because if the AG's advice is correct then all the talk about renegotiating (which is the same as defaulting) on senior debt is completely off the table.
 

adrem

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Joined
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Messages
924
MPB - it's the insolvency act so technically the comment re it only applying to a failing bank is correct.

However - if you negotiate with senior debt they can simply say no way, close your bank if its insolvent and then you pay me at the same rate as you pay depositors because we both rank pari passu.

Bottom line is you can't "negotiate" with them because legally its unenforceable to treat them differently to depositors.

Sub on the other hand doesn't rank pari passu so if they force the closure of the bank they will likely get next to nothing - hence you can negotiate with them

make sense?
 

MPB

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Joined
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Messages
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MPB - it's the insolvency act so technically the comment re it only applying to a failing bank is correct.

However - if you negotiate with senior debt they can simply say no way, close your bank if its insolvent and then you pay me at the same rate as you pay depositors because we both rank pari passu.

Bottom line is you can't "negotiate" with them because legally its unenforceable to treat them differently to depositors.

Sub on the other hand doesn't rank pari passu so if they force the closure of the bank they will likely get next to nothing - hence you can negotiate with them

make sense?

It makes sense for the Bank to be as liable to Senior Bondholders but not for the State.

What if the State only guaranteed the deposits in Anglo?

What if the State negotiated with Anglo depositors to transfer their deposits to AIB and BOI for a fixed period and backed the transfer with assets from Anglo, say performing loans and NAMA bonds?

Would this be allowable?
 

The Field Marshal

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Joined
Aug 27, 2009
Messages
44,349
Eh?

I'm sure Irish law might have something to say on that issue too. If the government tried it, they'd probably lose the case in the high court.

Why not burn depositors too. Could that really be so much worse than the current situation?
So Seabhacan lets for arguments sake assume you have accumulated a small nest egg on deposit in AIB of say 12000 euro put by for some contingency or other or for saving up for that badly needed car trade in or whatever.

Seabhacan is obviously quite content then to take a hit of 30% on his hard earned few bob that he trusted the bank to carefully mind and now they are simply reducing his 12000 to 8400 resulting in a personal loss to him of 3600

If Seahacan believes its acceptable that 30% of all Irish depositers money be simply allowed to vanish without serious repercussions then he is not living in the real world.


....
 

MPB

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So Seabhacan lets for arguments sake assume you have accumulated a small nest egg on deposit in AIB of say 12000 euro put by for some contingency or other or for saving up for that badly needed car trade in or whatever.

Seabhacan is obviously quite content then to take a hit of 30% on his hard earned few bob that he trusted the bank to carefully mind and now they are simply reducing his 12000 to 8400 resulting in a personal loss to him of 3600

If Seahacan believes its acceptable that 30% of all Irish depositers money be simply allowed to vanish without serious repercussions then he is not living in the real world.


....
All deposits in Irish Banks are guaranteed by the state for 100k.

Prior to that it was 25k. So no risk even pre blanket guarantee.
 

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