Lenihan hints at pain for Anglo bondholders

FINANCE Minister Brian Lenihan has given the strongest indication yet that the riskiest lenders to Anglo Irish Bank will soon be told they will not get all their money back.

This could limit taxpayers’ exposure in the toxic bank by more than €1.2 billion.

Mr Lenihan explained the bank guarantee scheme would be extended once it ran out at the end of September. Amotion to this effect was passed by the cabinet this week.

But the new three- month guarantee will only cover deposits and not the controversial subordinated debt. Mr Lenihan said he would not confirm the nature of plans for Anglo until early next month.

Doubts have been expressed for two years, and were raised by Central Bank governor Patrick Honohan, about whether this section of Anglo’s liabilities should ever have been covered under the blanket guarantee.

There is currently €1.7bn worth of dated subordinated [risky] bonds on Anglo’s books. These are valued at less than 30% of what they represent under the guarantee.

Fine Gael and the Labour Party have called for these subordinated lenders to be negotiated with so they do not receive the full €1.7bn once the guarantee is finished.

At the Oireachtas Finance Committee, Fine Gael’s deputy finance spokesman Kieran O’Donnell said these risk-taking bondholders should take some of the pain. “Non-guaranteed bondholders should share in the cost of the wind down of Anglo.”

Labour’s Joan Burton said there needed to be a resolution with these special categories of bondholders to spare taxpayers carrying the full burden.

Fianna Fáil’s Michael McGrath asked the minister how much of Anglo’s bondholders would no longer be covered in the new guarantee. However, the meeting had to be suspended shortly afterwards because of arguments between the minister and the opposition.

When it resumed, Mr Lenihan said another €4.2bn of senior bonds, which were taken out before the guarantee, will also fall out of the state’s protection at the end of this month.

However, the minister was at pains to stress senior debt was treated differently and the country would not default on its obligations in this area.

The committee also heard that, for the second time this year, the Government failed to convince Eurostat that the elaborate instruments used to rescue the banks could not be kept separate from the national debt.