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Haircutting or resolution of bank subordinated debt


yehbut_nobut

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Anglo offers to buy back $4.6bn debt - The Irish Times - Wed, Jul 22, 2009

http://www.bloomberg.com/




Nationalised lender Anglo Irish Bank said today it wants to buy back $4.6 billion of subordinated debt as it seeks to boost capital.
The bank has offered bondholders between 27 per cent and 55 per cent of face value to redeem tier 1 and tier 2 securities.
Anglo Irish, which is grappling with a surge in loan losses, said July 9th it may halt interest payments on some Tier 1 securities as part of conditions set by the European Commission when it approved a €3 billion capital injection by the government.
The bank, which reported a first-half loss of €3.77 billion, said in May it faces writedowns of €7.5 billion on loans in the three years through September 2011.


Bloomberg
All these numbers!!! What does it all mean?!! Where will it all end?!!
 

jpc

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And these tulips want 75- 80% of the face value of their bad debts?
Dream on.
 

cyberianpan

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This is a big story as it is recovery of a few billion for the country

The negotiations should be interesting

cYp
 

powderfinger

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Who would be typical holders of this type of debt?

Would they be overseas or Irish based?
 

bluefish

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So in other words, Anglo Irish Bank pays back a little of the money it borrowed to stay afloat.

Woudnt it be great if we could all get the government to pay off our loans, and then we pay a small amount back to the government.

What I donr understand is how they have managed to make 4.5 Billion already?

If they could make that much money in such a short space of time, why were they ever in trouble?
 

yehbut_nobut

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Not being an economist, I'm still trying to get my head around this one, after a busy afternoon. Any care to disambiguify me ;)?

"buying back" debt - does the bank is repaying money it owes to others, or what?

Explanations welcome...
 

cyberianpan

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Not being an economist, I'm still trying to get my head around this one, after a busy afternoon. Any care to disambiguify me ;)?

"buying back" debt - does the bank is repaying money it owes to others, or what?

Explanations welcome...
You can always buy back you debt (pay it off). The significant thing here is they're only gonna pay back some of it and then call it quits !!

27 per cent and 55 per cent of face value
cYp
 

SPN

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Not being an economist, I'm still trying to get my head around this one, after a busy afternoon. Any care to disambiguify me ;)?

"buying back" debt - does the bank is repaying money it owes to others, or what?

Explanations welcome...
It is paying back 27c on the € to people who loaned it money.

It has also ceased paying interest on these loans - possibly to encourage people to take the payment offer.
 

yehbut_nobut

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You can always buy back you debt (pay it off). The significant thing here is they're only gonna pay back some of it and then call it quits !!



cYp
thanks for that, cyp!

edit: And SPN!
 

youngdan

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They are not actually paying it off in the true sense.

They owe 4.5 billion to the bondholders. However those bonds are not worth 4.5 billion in the marketplace because of the threat of default in which case the bonds are worthless. So the more threats of default the lower the value goes. So they are offering to buy the bonds at 55 cents. The bondholder has a decision to make, take the offer or don't and hope that anglo does not default and leave him with very little.

If they all sell, anglo will have bought back an asset for say 2 billion which it previously sold for 4.5 billion.

So on the 2 trades it actually made a profit of 2.5 billion.

The bond buyers suffered a loss of 2.5 billion
 

cyberianpan

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They are not actually paying it off in the true sense.

They owe 4.5 billion to the bondholders. However those bonds are not worth 4.5 billion in the marketplace because of the threat of default in which case the bonds are worthless. So the more threats of default the lower the value goes. So they are offering to buy the bonds at 55 cents. The bondholder has a decision to make, take the offer or don't and hope that anglo does not default and leave him with very little.

If they all sell, anglo will have bought back an asset for say 2 billion which it previously sold for 4.5 billion.

So on the 2 trades it actually made a profit of 2.5 billion.

The bond buyers suffered a loss of 2.5 billion
Indeed - and under capital adequacy ratios it will improve their balance sheet by the difference

Though this highlights a serious deficiency in global financial markets architecture: various debt instruments were issued ... yet there has never been a liquid secondary market for them ... this is lunacy as it means that there is serious opacity

Yet you'll never see a politician - or one of our new numptie economics experts campaigning for :

"efficient secondary markets in debt instruments"

That is because the numpties never saw it coming - and still don't know what happened


cYp
 

youngdan

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That is a very good point, nobody has a clue really what these bonds are worth if they are not being traded somewhere.
 

SPN

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Yet you'll never see a politician - or one of our new numptie economics experts campaigning for :

"efficient secondary markets in debt instruments"

That is because the numpties never saw it coming - and still don't know what happened
cYp
So true!
 

dlohan

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The question is...

The question for me is... whether the bank is buying back debt because it is going to push the same debt into NAMA? Is it going to get a better deal from NAMA and hoist the debt on the taxpayer? Does it see an opportunity to make money from effectively nationalising its debts - even those it had sold on?
 

Jock_the_Waster

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This is BAD

Just like AIB's 'rebuys' were BAD

These are bonds that could be squelched, their owners know that, this is why they are trading them for discount

the fact is, that with the Irish taxpayers money Anglo are issuing fully guaranteed bonds in lieu of 'worthless' bonds

this IS increasing exposure to the Irish taxpayer

where is the revolution?
 

cyberianpan

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The question for me is... whether the bank is buying back debt because it is going to push the same debt into NAMA? Is it going to get a better deal from NAMA and hoist the debt on the taxpayer? Does it see an opportunity to make money from effectively nationalising its debts - even those it had sold on?
Anglo ... is .... nationalised .... already

Nama ... is ... only ... for ... loan ... assets

cYp
 

dlohan

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Of course!

Anglo ... is .... nationalised .... already

Nama ... is ... only ... for ... loan ... assets

cYp
Of course! One of the disadvantages of living out of the country these past few years - one misses so much. But what a wonderful opportunity for the bank that if offloads assets on the state, accrues a fiscal return and then buys back bonds it would otherwise have struggled to buy back within this term. All with the assistance of the Irish taxpayer!
 
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