Irish banks issue €16.5bn of government-backed bonds

IRISH banks issued €16.5 billion of government-guaranteed bonds in the past two weeks, which are eligible as collateral for European Central Bank funding.

The three-month notes for Allied Irish Banks, Bank of Ireland and Irish Life & Permanent were listed on the National Treasury Management Agency’s website.

Spokesmen for each of the lenders said the issues are a rollover of existing so-called self-held bonds they started issuing in January to use as security for ECB loans.

Irish banks, locked out of the public debt markets in the past 12 months, have raised about €6.8bn since June from private sales of mainly mortgage-backed bonds. With deposits having fallen, Irish consumer banks were reliant on €71.1bn of ECB funding at the end of September, according to Central Bank data.

“Self-issued government guaranteed bonds have been a simple method of funding for Irish banks for some time now,” said John Buckley, co-head of fixed income at Goodbody Stockbrokers.

“As other sources of funding have dried up, the covered banks have issued themselves bonds under” the government guarantee scheme, to refinance with the ECB.

The bonds are “eligible collateral for eurosystem market operations, once they are guaranteed by the government,” in line with ECB criteria, Nicola Faulkner, a spokeswoman with the bank, said. The “issuance substitutes for the technical loss of other eurosystem collateral.”

On January 1 the ECB stopped accepting securities in currencies other than the euro as collateral for funding.

“These bonds are simply a rollover of upcoming maturities of retained government-guaranteed bonds,” said BoI spokeswoman Anne Mathews. “The bonds originally replaced a similar amount of sterling contingent collateral previously eligible for use in the liquidity operations of the ECB.”