THE GOVERNMENT has ruled out “burning” bondholders in the two main banks, Bank of Ireland and AIB, and does not expect to seek burden-sharing at Anglo Irish Bank.
Minister for Finance Michael Noonan insisted last night that Ireland would not engage in any unilateral “burning” of bondholders. “Burden-sharing is not the majority opinion so we’re not going to go there until we go with our European colleagues,” he said.
He was speaking along with Taoiseach Enda Kenny, Tánaiste Eamon Gilmore and Minister for Public Expenditure Brendan Howlin at a press conference on the Government’s new plans for the banking sector.
In relation to Bank of Ireland and AIB, the two “pillar banks” under the new structure it has proposed, Mr Noonan said there were strong arguments in favour of allowing them keep existing relationships with funders.
The situation with Anglo Irish Bank was different, he said, as it was “scarcely a bank anymore” and more resembled a warehouse for impaired assets.
Mr Noonan acknowledged there was €3.7 billion in unguaranteed senior bonds in Anglo and Irish Nationwide and there was a strong argument for burden-sharing. He said it wasn’t an urgent one, because neither bank was subject to the stress tests and so there was no call for additional capital. If in future there was a need for additional capital, Mr Noonan said the Government would seek to reopen discussions on this issue with European authorities.
Mr Kenny said it wouldn’t be “reasonable or logical” to go after the bondholders in the two main banks as they were central to the resurrection of the economy.
Mr Kenny said he “only hoped” the €24 billion requirement identified in the stress tests turned out to be the final figure: “We expect that is the state of what it now is”.
Mr Noonan said Irish Life Permanent needed to sell off its insurance business “very quickly” as there was a risk that its impaired banking arm would affect what was a sound insurance business.
He predicted that Bank of Ireland would be completely State-owned by mid-June unless it succeeded in raising private funds from the market. If it achieved its aim of doing this, it would be allowed continue as it is.
Mr Kenny confirmed that he had spoken yesterday to ECB president Jean-Claude Trichet – who is currently in China – about the Government’s plans. Asked why the ECB hadn’t provided Ireland with a medium-term loan facility, he said Mr Trichet was subject to the direction of the boards of the other 17 central banks.
Mr Kenny said there was no point in downplaying the magnitude of the problem the Government had inherited from its predecessor. However, unlike the last government, this one had a plan to deal with the problem.
He said this legacy was a completely dysfunctional banking system, which was completely dependent on European central banks for short-term funding, was successfully resisting change and was starving enterprise of the credit it needed.
Mr Kenny said the stress tests confirmed the scale of the problem, while the Government plan provided the foundation for broader economic recovery.
The aim was to make the two banking pillars the engine of economic recovery, thereby restoring public and market confidence as well as in the banks’ ethical integrity.
He said the two pillars built around Bank of Ireland and AIB would minimise any further cost to the taxpayer of fixing the Irish banking system by delivering a manageable pace of bank deleveraging and requiring additional burden-sharing by certain classes of bondholders.
Mr Howlin described the stress tests as vigorous and unprecedented in any European country. The objective was to have normal, scaled down banks, not “bubble banks”, at the end of the process.
He said the two pillar banks under the new structure would provide €12 billion of lending for small enterprises each year.
