Looking for answer to 3 financial questions on INBS/Anglo, National Debt and EU bond.

irishguy

Sorry if they were already answered, but I couldnt find any sufficiently detailed answers.

1. Why cant the government come Jan 1st 2011 (State guarantee expires) put anglo and INBS into liquidation protect the small depositor. Then the bond/share holders fight it out for the left over assets.?

2. What would the impact of a partial/full default/renegotiation on national debt mean to Ireland? in terms of the economy, tax rates, private sector employment and interest rates charged by the banks?

3. Why dont the EU create a bond backed by the EU so Euro countries (i.e. the PIIGS) can reduce the amount they pay in interest?


What do people think?

Scarab80

irishguy wrote: »

Sorry if they were already answered, but I couldnt find any sufficiently detailed answers.

1. Why cant the government come Jan 1st 2011 (State guarantee expires) put anglo and INBS into liquidation protect the small depositor. Then the bond/share holders fight it out for the left over assets.?

You have to differentiate between the different guarantees in place. The CIFS guarantee was the original blanket guarantee which covered all liabilities from Sept 29 2008 - Sept 29 2009, this guarantee is still ending at the end of this month.

The ELG guarantee is being extended to Dec 2010, this covers short term debt (such as bank and customer deposits) aswell as specific issues of debt securities made under the scheme, a list of issuances under the ELG scheme can be found here. Securities issued under this scheme are guaranteed until they mature/out to a period of 5 years.

The Deposit Guarantee Scheme (DGS) covers all despoits up to €100k, this scheme does not have an end date.

At 30 June 2010 Anglo had 56bn in customer and bank deposits, 16bn in senior bonds and 2.5bn in subordinated bonds. Of the 16bn senior bonds, 4bn are covered under the ELG scheme and another 8bn are due to mature before the end of September so they will have to be rolled over into ELG scheme or repaid under the CIFS guarantee. That leaves possibly 4bn of unguaranteed senior debt. The 2.5bn in sub debt will not be covered come October.

If the government were to withdraw support from the bank at the end of the year, the 56bn bank and retail depositers would be able to demand repayment from the state in December 2009 under the guarantee, further the majority of senior bondholders would be able to demand repayment under the ELG scheme. Basically immediate liquidation is not an option.

In relation to shareholders, they were wiped out when the bank was nationalised, the state is now the sole shareholder.

There is talk of being able to force losses on the subordinated bondholders and unguaranteed senior bondholders, either through negociated buybacks at a discount or possibly via the new funding bank/asset recovery bank structure though this is all speculation at this stage and the bondholders always retain the right to apply for an immediate wind up through the courts if they are being selectively defaulted on.

irishguy wrote: »

2. What would the impact of a partial/full default/renegotiation on national debt mean to Ireland? in terms of the economy, tax rates, private sector employment and interest rates charged by the banks?

Into uncharted territory here, i'll let someone else attempt to answer.

irishguy wrote: »

3. Why dont the EU create a bond backed by the EU so Euro countries (i.e. the PIIGS) can reduce the amount they pay in interest?

They have, it's called the EFSF, however it is a lender of last resort as if accessed, other EU member countries will be taking responsibility for our debt - i'm sure they are pretty keen on avoiding that if at all possible.

noodler

Scarab80 wrote: »

You have to differentiate between the different guarantees in place. The CIFS guarantee was the original blanket guarantee which covered all liabilities from Sept 29 2008 - Sept 29 2009, this guarantee is still ending at the end of this month.

I didn't think this was true. I thought that all debt issued between Sept 2008 and December 2009 (like all pre-Sept 2008 stuff) was not going to be guaranteed after the CIFs ends.

That was my understanding anyway, I couldn't see anything backing your interpretation last time I read the DoF documents? Can you explain?

Scarab80

noodler wrote: »

I didn't think this was true. I thought that all debt issued between Sept 2008 and December 2009 (like all pre-Sept 2008 stuff) was not going to be guaranteed after the CIFs ends.

That was my understanding anyway, I couldn't see anything backing your interpretation last time I read the DoF documents? Can you explain?

Typo there, I should have said Sept 29 2008 - Sept 29 2010.

Regardless I don't think it affects your question, which is if guarantees will extend beyond the end of the CIFS. You are correct that debt issued between Sept 2008 and Dec 2009 predate the ELG scheme and will not be covered post 29/9/2010, however one would expect debt issed in that period to have a maturity date prior to the cessation of the CIFS guarantee, as is evidenced with 8bn of Anglo senior bonds maturing in September 2010. This debt will therefore be rolled over into the ELG scheme and guaranteed until maturity. One would expect a large amount of shorter term commercial paper and term deposits already to be rolled over into the ELG in 2010.

I don't think it affects my estimate of guaranteed v unguaranteed debt going forward.

noodler

Thank you for the clarification.

I was just being technical.

irishguy

@Scarab80
Thanks for the explanation.

On point 3. I still dont see why the EU dont create a bond that all Euro countries can use to borrow money backed by the EU. Yes sure the solvent countries are supporting the insolvent countries, but thats the way currency unions work right?
Sure the USA issues dollar bonds to fund budget shortfalls in California, California doesnt go into the market if it did no one would lend to it. So they issue them under the backing of the USA and get cheaper credit. I think its a no brainer

Anyone hazard an intelligent guess on point 2.?

AnonymousPrime

Scarab80 wrote: »

At 30 June 2010 Anglo had 56bn in customer and bank deposits.

I never realised this, was it legal to have so little liquidity given the amount of deposits?
Can a legal case be taken against the old financial regulator

(Forgive me if this has been asked 1000 times, as you can see I'm new to these parts)