Burn Anglo Irish Bank bondholders, says Joan Burton

Tánaiste Joan Burton has backed the outgoing central bank governor’s calls to burn Anglo Irish Bank junior bondholders and thereby save taxpayers up to €300m.

However, Finance Minister Michael Noonan said it may be years before it emerges if the investors in the bank will or will not be entitled to surplus funds from the liquidation of IBRC, formerly Anglo.

New correspondence shows governor Patrick Honohan telling Department of Finance officials that the moral case for the surplus money to be paid to junior bondholders is “almost unassailable”.

In one of his last acts before announcing his retirement, he advised that one of the world’s top debt lawyers could be hired and burning the bondholders might be “worth a big legal battle”, according to documents printed in a newspaper this week.

Junior bondholders owed €270m are almost last in line to be paid from the liquidation of over €21bn worth of assets belonging to the IBRC.

The fresh correspondence and comments have reignited the contentious issue of whether or not taxpayers’ money should go towards bondholders who took a risk investing in the now defunct bank.

Ms Burton insisted yesterday that the Government would go to great lengths to prevent those bondholders getting their dividends.

“We will use all the legal means at our disposal to resist any attempt by these junior bondholders to extract any money from the Irish Government.”

Earlier her spokesman said she backed the calls to deny the bondholders their payments: “The Tánaiste is resolute in her view that the junior bondholders in question should not and will not be paid.”

Mr Noonan raised doubt as to whether junior bondholders might be getting any payments any time soon.

There is a pecking order for who gets paid first, he explained, with the State representing about 70% of unsecured creditors — payments that “should be satisfied”.

Money is also owed to credit unions as well as commercial activities who would also be paid first, he said.

“At the end of the process in two, three, four years’ time, the issue of junior bondholders will come up. And we’ll take Patrick Honohan’s advice very seriously if it comes to that. But there may not be enough money there anyway because they come at the end of a hierarchy,” said Mr Noonan.

Taoiseach Enda Kenny said six months ago that he did not see “any circumstances” where Anglo junior bondholders might be paid.

The Coalition insists that the taxpayer is well ahead of junior bondholders when it comes to receiving funds from the liquidation.

Mr Noonan told the Dail last December that those bondholders would be legally entitled to a dividend if they submitted claims.

A spokesman for the Taoiseach last night said it was still his position that Anglo junior bondholders were “unlikely” to be paid.

“We can’t see it happening anyhow during the lifetime of this government. There is a pecking order and the State will be first.” But the spokesman did concede that the State would have to engage in a legal battle to deny junior bondholders payments.

Sinn Fein said last night that the Government should listen to Mr Honohan and ensure that junior bondholders at IBRC are not paid hundreds of millions of euro as a result of its liquidation.

Mr Honohan’s suggestion to the Department of Finance needed to be listened to properly, said party finance spokesman Pearse Doherty. “Governor Honohan is a member of the ECB Governing Council. To see his concern and opinion dismissed without adequate discussion is unacceptable.”