Bad mortgage concerns erode bank confidence

As Ireland edges back into bond markets, the banks that tipped the country into bankruptcy remain reliant on aid while bad mortgages mount.

The yield on Ireland’s benchmark 2020 bond this week fell below 6% for the first time since the 2010 bailout. Bank of Ireland Plc’s State-guaranteed bond, maturing in 2015, yielded about 260 basis points more than the equivalent Government security because of concern over unpaid home loans.

“The mortgage issue erodes confidence in the banks,” said Stephen Lyons, an analyst at Davy, Ireland’s biggest securities firm. “It erodes their own confidence to lend and erodes the confidence of investors to lend to Irish banks.”

The national debt agency sold €500m of Treasury bills and €4bn of bonds due for repayment in 2017 and 2020 last month. On Thursday, it sold €1.02bn of amortising bonds, which are used to meet pension liabilities.

The weighted average yield was 5.91%.

“There is probably a rough timetable: Bills, then new sovereign issuance and then once that is at a level, it will be banks,” said Liam Dunne, analyst at Merrion Stockbrokers. “Clarity definitely is needed on the mortgage book.”

Bank of Ireland’s Government- guaranteed senior unsecured notes due Jan 2015 yield 6.02%. Similar notes from the former Irish Life & Permanent Plc yield 6.84%. Those of Allied Irish Banks’s senior unsecured notes due March 2015 yield 5.75%.


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