RTE news - Rehn says senior bondholders may have to share in cost of bank bailout

orbit

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The legislation contains a range of measures to safeguard deposits, no matter if senior bondholders were led to believe (either in debenture provisions or previous legislation) they'd be treated parri passu with depositors. Naturally, there are safeguards and compensation measures to prevent bondholders being ripped off (e.g. if bank assets are transferred to a 'bridge bank').

Unless you think Irish constitutional law imposes some other protection of bondholders, the existence of the SRR in the UK suggests that EU law and the common law are no barrier to the state insisting depositors are protected more strongly than bondholders, in spite of private contract and pre-existing statute law providing for equal treatment.
I'm no expert, but I wouldn't take it as given at all that the Irish constitution doesn't protect bond holders against that. It's interesting that the UK SSR has an objective of trying not to interfere with people's property rights. That's exactly the area where similar legislation could come into conflict with our constitution. But, having said that, there's no law (even constitutional law) that can't be changed. Though, as Goosebump points out, it's one thing having a provision like this on the lawbook, another thing entirely actually using it.

In any case, as someone wondered earlier, how much senior debt is actually left outstanding? I don't pretend to understand the details but if it's the case that most senior debt has already been rolled over and converted into debt that we owe to the ECB, what difference does it make?

If it's the case that the debt has been rolled over, but is simply guaranteed by the state, ie. the creditors haven't actually been repaid in cash, then maybe we have more room to maneuver.

I wonder if all of this is what Colm McCarthy cryptically referred to as "broken field rugby" last night?
 
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Dreaded_Estate

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Agreed. But I've never denied this.

As I said, its kicking the can down the road. Liquidating the bank at the bottom of property cycle will crystalise the deposit liability at its greatest extent, whereas running it out over 20 years gives us a least a fighting chance reducing it.

There is also a liquidity issue, in that desposit liabilities have to be paid on the nose, whereas the bondholder liabilities mature over 5-10 years, enabling the use of promissory notes.

Well I think that is clearly complete nonsense and void of any clear financial thought.

You are choosing a strategy that will cost more long term to save money now. And it is even debatable whether it saves money now.

Firstly, as bondholders would not be grated a liquidation order if we had banking resolution legislation there would be no immediate need to repay depositors.

Secondly, since the vast bulk of the depositors are now in central banks we could easily some to arrangement where immediate repayment would be needed. I'm sure the Irish central bank would oblige.

Thirdly, you don't have to sell the assets of the bank now. And what ever long term gain we could get from a recovery in the property market would be achieved in any case.

Fourthly, we are not at the bottom of the property market.
 

A Time for Every Purpose

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If we do get a discount from the bondholders can I suggest taking the money and buying both RBS and LloydsTSB, the market capitalisation of RBS is circa £23B and Lloyds is £42B, we owe both banks about £40B, so we can have the 2 banks for about £25B extra and own our debt, plus gain a major foothold in the UK banking system which is outside the Euro.

Best form of defence is attack!!!
Could someone recommend an easy to understand book on economics
in the market place?
Completely lost in this field.
 

eoghanacht

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Too little too late Brian you treacherous gimp
 

Sucker Punch

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Expatriot

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I'm making the point that the State can't legislate to interfere the property rights, and debt agreements are property rights.
Do you seriously believe that?

What is NAMA?

Or a compolsory purchase order?
 

Kalan

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maybe

Maybe Jack O'Connor and the ICTU will now join Ollie Rehn and cease their opposition to a haircut for the bondholders.
 

picador

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I don't know has this been mentioned already but apparently the German parliament is introducing a law that converts bonds to stock in the event that a bank goes into administration.
 

Kalan

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acceleration

The European financial meltdown accelerates.

"Irish, Portuguese and Spanish bond yields surged to their highest points since the launch of the euro, as traders said even some of the bigger eurozone countries could soon be affected....
Some traders warned that contagion could even spread to the core eurozone debt markets of France and the Netherlands." FT.
FT.com / Capital Markets - Eurozone borrowing costs hit record

Meanwhile back in Dublin IMF/EU talks on terms and conditions of the Irish bailout continued at a leisurely pace.
 

nicht besonders

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May I refer all to this post on The Irish Economy site.

Seems something is up, it has all the look of playing stall the ball, until something is fully agreed.
Or am I wrong?

This bloddy issue is so confusing for mere mortals like me, but truly want to know?
+1

Thanks for posting to that comment
 

goosebump

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Well I think that is clearly complete nonsense and void of any clear financial thought.

You are choosing a strategy that will cost more long term to save money now. And it is even debatable whether it saves money now.

Firstly, as bondholders would not be grated a liquidation order if we had banking resolution legislation there would be no immediate need to repay depositors.

Secondly, since the vast bulk of the depositors are now in central banks we could easily some to arrangement where immediate repayment would be needed. I'm sure the Irish central bank would oblige.

Thirdly, you don't have to sell the assets of the bank now. And what ever long term gain we could get from a recovery in the property market would be achieved in any case.

Fourthly, we are not at the bottom of the property market.
I don't think there is any point in thrashing this out any further.

Labour and FG have committed to negotiating with senior bondholders (despite repeatedly claiming that the Guarantee is cast in stone, a contradiction that no one in the media seems to have picked up on) so I guess if its possible, and prudent, it will happen within a few months.

If it does, fair play to them, but I have my doubts.
 

Expatriot

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I don't think there is any point in thrashing this out any further.

Labour and FG have committed to negotiating with senior bondholders (despite repeatedly claiming that the Guarantee is cast in stone, a contradiction that no one in the media seems to have picked up on) so I guess if its possible, and prudent, it will happen within a few months.

If it does, fair play to them, but I have my doubts.
If the guarantee is "cast in stone" how come we have already hit junior bond holders? We covered them in 2008 too. So the same legal position applies to senior ones. We offer them 20 cents in the euro, they can take it or leave it. The legal cover given to the junior bonds was no different to the senior ones. You talk them down and buy them cheap, its simple. They have no rights as private investors in a private company beyond what we gave them in 2008, we have already shown that can be altered by burning junior debt.

Just do it for the love of god.
 

goosebump

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If the guarantee is "cast in stone" how come we have already hit junior bond holders? We covered them in 2008 too.
I don't think the Guarantee is cast in stone. Others do, and use this as a stick to beat the Government.

Its always been my position that honouring the debt has been a matter of policy, driven by the EU, rather than a legal imperative.

Current deliberations in Merrion Sq, where that policy is now under review, would seem to back up that view (albeit that it is not clear what is going on, or that all debt (guaranteed and non-guaranteed) is on the table).
 

Libero

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I'm no expert, but I wouldn't take it as given at all that the Irish constitution doesn't protect bond holders against that. It's interesting that the UK SSR has an objective of trying not to interfere with people's property rights. That's exactly the area where similar legislation could come into conflict with our constitution. But, having said that, there's no law (even constitutional law) that can't be changed. Though, as Goosebump points out, it's one thing having a provision like this on the lawbook, another thing entirely actually using it.

In any case, as someone wondered earlier, how much senior debt is actually left outstanding? I don't pretend to understand the details but if it's the case that most senior debt has already been rolled over and converted into debt that we owe to the ECB, what difference does it make?

If it's the case that the debt has been rolled over, but is simply guaranteed by the state, ie. the creditors haven't actually been repaid in cash, then maybe we have more room to maneuver.

I wonder if all of this is what Colm McCarthy cryptically referred to as "broken field rugby" last night?
Some fair points there, and I've acknowledged myself that there's far, far less bank senior debt around since last September to get "burned".

But has corporate examinership ever been looked upon in Ireland as an unjust attack on creditors' property rights?
If not, I don't see how another insolvency procedure like a SRR could be impugned. As a matter of fact, deposits and senior debt are essentially different categories of creditor, even if the senior bond debenture expressed them to rank equally. There's a strong rationale in public policy (including EU law) for the state to make special efforts to protect depositors.

The other great creditor dilemma is of banks' obligations to the ECB, but that game won't be decided in any courtroom.
 

Dreaded_Estate

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I don't think the Guarantee is cast in stone. Others do, and use this as a stick to beat the Government.

Its always been my position that honouring the debt has been a matter of policy, driven by the EU, rather than a legal imperative.

Current deliberations in Merrion Sq, where that policy is now under review, would seem to back up that view (albeit that it is not clear what is going on, or that all debt (guaranteed and non-guaranteed) is on the table).

We have spent the last few pages arguing over whether imposing losses on seniors was legal. Now you are saying it was a policy issue not a legal one, odd!
 

Expatriot

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I don't think the Guarantee is cast in stone. Others do, and use this as a stick to beat the Government.

Its always been my position that honouring the debt has been a matter of policy, driven by the EU, rather than a legal imperative.

Current deliberations in Merrion Sq, where that policy is now under review, would seem to back up that view (albeit that it is not clear what is going on, or that all debt (guaranteed and non-guaranteed) is on the table).
Well that makes it easy, if its a matter of policy change, then change the policy to offering them 0.1% and welcome Rabobank into all the best high street locations and away we go.

In terms for "burning" I am all for the flame thrower option in the policy stakes at this stage.

Take a few bob off the IMF/EU, close the deficit and dont go near the markets for a few years. All will be forgotten and whats better we wont have any domestic banks left in the country.

Sounds good to me.

QED
 

Astral Peaks

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We have spent the last few pages arguing over whether imposing losses on seniors was legal. Now you are saying it was a policy issue not a legal one, odd!
Meanwhile, as Ireland fiddles......

Constantin Gurdgiev has a post on his blog which I (a non-expert) find worrying.
Read here.

I know of the contagion risk, but this makes me feel that the ECB are powerless to contain this.
So my question is this: At what point will the bond markets say enough?
Or is there such a piont?
 


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