Irish banks issued €8bn of bonds this week before the expiry of a government guarantee that allows them to be used as collateral with the ECB.
Bank of Ireland and Permanent TSB printed €5bn and €3bn of the notes respectively, according to the National Treasury Management Agency website, before the Government stopped guaranteeing new liabilities yesterday. The lenders will keep ownership of the notes, which they can exchange for ECB funding if needed.
“This is a very prudent move by the banks just before the guarantee expiry, giving them a collateral buffer, particularly after the uncertainty caused by the Cypriot bailout,” said Owen Callan, an analyst at Danske Bank in Dublin. “Cyprus has shown how things can flare up.”
Irish banks began issuing so-called own-use, or self-held, bonds in Jan 2011 to create collateral as they were locked out of public debt markets. Reliance on these notes, which must be backed by a government guarantee for them to be eligible with the ECB, has dropped to €3bn in February from a peak of almost €18bn before the State completed a €64bn bailout of its banks in Jul 2011, NTMA data show.
Unlike previous own-use bonds, which matured after three months, the latest notes issued by Bank of Ireland and Permanent TSB will not mature until Mar 2015, when the ECB is slated to stop accepting this type of collateral.
Irish banks have relied heavily on ECB and Irish central bank emergency funding since they came close to collapse in Sept 2008 following the bursting of the property bubble. Still, their dependency has fallen by more than one third since the middle of 2011, as lenders shrank the size of their loan books, won back some deposits and re-entered bond markets last year for the first time since 2010.
Permanent TSB chief executive Jeremy Masding and AIB boss David Duffy each said this week that their deposit bases remained stable even as Cyprus started to inflict losses on customer savings.
AIB does not need to issue government-guaranteed “contingent liquidity support and incur the associated costs,” Niamh Hennessy, a bank spokeswoman, said. “AIB’s liquidity position is healthy.”