Anglo bailout ‘may exceed’ €35 billion

AS the Government prepares to put a final cost on the Anglo Irish Bank rescue, rating agency Standard & Poor’s warned the total cost of the bailout could be higher than its initial €35 billion estimate.

S&P unnerved the markets further yesterday with its warning that its initial figure could be too low raising fears that Anglo may yet prove to be the tipping point for the economy.

S&P’s credit analyst Trevor Cullinan said the total cost of bailing out Anglo Irish Bank could exceed the agency’s previous €35bn forecast.

Those who disagreed with our figure now seem to be coming in line with that recapitalisation cost, he told RTÉ radio.

If the €35bn estimate is exceeded, “there potentially could be further downward rating actions from Standard & Poor’s,” said Mr Cullinan. With Irish bond yields touching close to 7% economist David McWilliams tweeted yesterday “once they (bond yields) break 7%, it’s curtains” for the Irish economy.

The net effect of this pressure means the bond markets will shut to Ireland in coming days, he warned.

That will force us to go to Europe for a bailout “that will come with stringent conditions attached, he warned.

Ireland has a clear pathway out of its banking crisis, which has come at a horrendous cost, Foreign Affairs Minister Micheál Martin said yesterday in New York in an interview on Bloomberg Television’s In Business With Margaret Brennan.

Recent government sources suggest the additional cost of the Anglo bailout could be another €7bn, but that is a worst case scenario, it its understood.

It is expected that two figures will be put into the public domain by the Central Bank and the Financial Regulator. These will be arrived at after Anglo’s loans have been thoroughly vetted in an attempt to reach a figure that will reassure the markets.

Anglo Irish’s senior debt was yesterday cut to the lowest investment grade rating by Moody’s Investors Service, which said it may reduce the rating to junk unless the Government guarantees bondholders against losses. Anglo Irish’s subordinated debt, guaranteed by Ireland’s government until September 29, was downgraded to “Caa1” from “Ba1”.

The Government appears to “remain resolute that there will be no renegotiation” with Anglo Irish’s senior bondholders, Goodbody Stockbrokers said yesterday.

The cost of credit-default swaps, the means to insure the senior debt of Anglo Irish rose 4 basis points to 940, after earlier reaching an all-time high, according to data provider CMA.

The contracts have more than doubled since July, CMA prices show.

Credit-default swaps on Irish government debt climbed 4.5 basis points to 493 from a record-high closing price yesterday, CMA prices show.


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