Government backs down on burning bondholders

THE Government has backed down on its pre-election posturing to strong-arm senior bondholders to take losses and help pay for the banking bailout.

It said in order to keep the new banking pillars, built on the structures of Bank of Ireland and AIB, viable these opaque investors would be protected.

Public Expenditure Minister Brendan Howlin said the matter had been raised at European level to seek support for this approach which would have minimised the cost to taxpayers. But this did not find favour.

He said it would be “invidious” to the ability of BoI and AIB to continue as effective banking institutions if they were told to “burn the existing senior bondholders.”

Finance Minister Michael Noonan said he expects €5 billion-€6bn to be cut from the banking bill by burden sharing among the more risky subordinated bondholders in the banks and Irish Life & Permanent. This would lower the cost of the latest bank capital injection from €24bn to close to €17bn once the insurance arm of IL&P is sold off.

Taoiseach Enda Kenny said there was a chance senior bondholders in Anglo Irish Bank and Irish Nationwide would be asked to suffer losses because they were being wound down and would not need to go back to the markets for funding.

However, he said this would not be known until May when, if necessary, it would ask the EU to reconsider its blanket protection of this class of investor.

Mr Noonan said private shareholders had suffered a loss of €60bn on their investment since the start of the bank collapse and subordinated bondholders had seen the value of their investments fall €10bn.

Central Bank governor Patrick Honohan said the idea of senior bondholders shouldering any of the huge burden was off the table.

“There is no question of the Government doing anything about the bonds at this stage,” he said. “The banks are going to have to move forward without doing anything to bondholders. I would like to make that absolutely clear.”

He added the Government has said clearly it has no plans to force senior bondholders, who have lent about €16bn to the banks, to share any of the current losses that are costing the state €70bn to put right.