Monday 24 September 2018

Dan White: Burning the bondholders now looks suspiciously like meaningless theatre

It's been a long time coming and there'll be no shortage of those saying 'about time too' but unfortunately, Michael Noonan's attempt to "burn" some of the senior bondholders of the Irish-owned banks is too little, too late. With over €70bn of these bonds having been already been repaid, this horse has already bolted.

Remember the general election campaign less than four months ago? All of the then opposition parties queued up to lambaste the previous government for its failure to "burn" the bondholders.

The then opposition parties argued, rightly in my opinion, that it was dreadfully unfair to force the Irish taxpayer to bear the full burden of the banks' losses, now at €100bn and rising, while most of the senior bondholders were repaid in full. That's the sort of thing that gives capitalism a bad name.

The junior, or unsecured, bondholders were burned, with Bank of Ireland junior bondholders being forced to accept a "haircut" of up to 80pc on their investment while AIB junior bondholders are in the process of being shorn of up to 90pc.

Which of course is only as it should be. The bondholders shared the rewards of the Irish banks' risky lending practices. Now they should bear the cost. That after all is how markets are supposed to work. High reward, high risk.

Someone seems to have forgotten to tell those uber-capitalists at the ECB. While it has, with considerable bad grace, allowed Ireland to "burn" the junior bondholders, it has adamantly set its face against this country burning the senior, or secured, bank bondholders. In fact it made the November 2010 "bailout" conditional on Ireland not burning the senior bank bondholders.

After having spent the general election calling for the burning of the bondholders, Fine Gael's then finance spokesperson Michael Noonan seemed to meekly accept the ECB's no-writedowns diktat when he became Finance Minister after the General Election campaign.

Fortunately, you can't keep a good man down. Despite having been previously slapped down by the ECB, Noonan has bounced back and is now proposing that Ireland burn the Anglo Irish and Irish Nationwide senior bondholders. Cannily, Noonan, who announced the move on his trip to the US capital Washington, seems to have lined up the support of the IMF and US Treasury Secretary Tim Geithner for his move.


This will make it much more difficult for ECB boss Jean-Claude Trichet, who with every passing day comes to more closely resemble the head of some obscure self- mortifying sect, to resist the latest move to burn the senior bank bondholders.

That's the good news. The bad news is that burning the senior bondholders now is like closing the stable door after the horse has bolted. The ECB lent us the money to repay the vast majority of the senior bondholders, about €70bn, in full. It was only after most of the senior bondholders had been repaid in full that the ECB pulled the plug and pushed this country into the bailout last autumn.

Even if the holders of the €3.7bn-worth of senior Anglo and Irish Nationwide bonds could be strong-armed into accepting a 65pc "haircut", the saving to the taxpayer would amount to just €2.4bn.

Better than a smack in the gob but, when you consider that the Irish taxpayers' total liabilities are now approaching €300bn, neither here nor there.

Even worse, it is only the residual Anglo and Irish Nationwide senior bondholders who are being stiffed. The remaining unguaranteed senior bondholders of the other Irish banks, about €16bn worth, will remain untouched.

It is difficult to resist the conclusion that what we are now witnessing is a piece of carefully-choreographed political theatre rather than a meaningful attempt to reduce the burden of bank losses on the shoulders of the Irish taxpayer.

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