Anglo to halt debt interest payments

THE state-owned Anglo Irish Bank looks set to halt interest payments on some of its subordinated notes as it seeks to redeem up to €3.25 billion of debt.

This move is being driven by the EU which recently approved the rescue of Anglo by the State.

Anglo fell under state control in January as the Government was forced to intervene to prevent the total collapse of the country’s third largest lender.

In its statement to the market issued yesterday, Anglo said it was about to end coupon (interest) payments on €1.2 billion and £800 million of Tier 1 notes from September.

These securities are issued by banks as capital required by regulators as a protection against future losses and are standard banking practices.

Stopping interest payments on Tier 1 securities was a condition laid down by the European Commission when it approved a capital injection, the statement said.

Since the banking turmoil erupted here last autumn, the Government has injected €3bn into the bank to shore up its capital base, which was seriously undermined by the collapse in the property market.

In its statement Anglo said it was “actively working” on a plan to buy back the Tier 1 notes, as well as €750m and £300 million of higher-ranking Tier 2 debt.

The offer is subject to regulatory and Department of Finance approval, it said.

The terms set by Europe allowed the issuer to pay interest on one series of the Tier 1 securities which will be done on July 23.

Now that the bank is state-owned, access to such funding has given Anglo a competitive advantage over private sector operators.

An Anglo spokeswoman said the bank had no further comment to make.

Anglo made losses of €3.77bn in the six months to 31 March, 2009.

Meanwhile, Moody’s Investors Service downgraded mortgage-backed promissory notes issued by four Irish banks, it said it a statement yesterday.

It downgraded notes issued by Bank of Ireland Mortgage Bank, ICS Building Society, AIB Mortgage Bank and Irish Life and Permanent Plc.