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Is Ireland About To Impair Bank Senior Debtholders (And Boldly Go Where America Was So Terrified To Venture)?

Tyler Durden's picture





 

The biggest piece of news this evening is, surprisingly, not the latest monsoon season suddenly to hit Manhattan, but comes from a few thousand miles to the East, out of Ireland to be specific, where we learn via the FT that the country "has opened the door to a renegotiation with senior bondholders of its
two nationalised banks despite previously opposing any such move for
fear of drawing the wrath of creditors around the world." This would be a huge change in strategy, and if effectuated, would mean that Ireland (for lack of an alternative) would be forced to do what the US was terrified of doing when Citi, Fannie and all the other still-bankrupt companies were on the brink. While the US never impaired the senior debt, for fear of enraging creditors (mostly China) who would have experienced their first capital loss on US-debt, it seems the dominoes are about to topple for Ireland as Irish eyes are about to stop smiling and take their bitter medicine, which our own Uncle Sam will avoid until well past the bitter end. Alternatively, this would also mean the end of the strong EUR regime once again, as the ping-ponging burden of proof of solvency shifts once again to Europe.

More from the FT:

Brian Lenihan, Ireland’s finance minister, told the Financial Times while on a roadshow in New York that he still opposed senior debtholders having to accept any losses as part of the €50bn (£43.7bn) bail-out announced two weeks ago . But if Anglo Irish Bank  and Irish Nationwide building society wanted to enter into “amicable discussions” with senior debtholders he would back the talks.

“Can there be discussions between banks and senior bondholders for mutual advantage? Of course there can be . . . [I would encourage them] if it is for mutual advantage, yes,” he said.

The treatment of senior bondholders is seen as crucial for Ireland, with Mr Lenihan reluctant to impose losses when many of the same investors also hold Irish government debt.

We doubt the last will be a major concern. As we showed on Sunday, the only buyer of Irish debt in September, was the ECB, either directly, or indirectly, via domestic banks. Now if Lenihan is worried that Ireland will never get a creditor aside from the ECB, then he is spot on.

However, the fact that taxpayers are having to foot most of the burden of the bail-out has caused public anger.

That's odd. In America public anger never materialized even though taxpayers had to foot a bill which at one point hit roughly $23 trillion, or just under two years of GDP, when all the guarantees were included. It must be something in that Irish diet...

Ireland is legislating to impose “burden-sharing” on the junior debtholders – who are further down the capital structure than senior holders and so suffer losses earlier – in both banks, which will mean they have to accept losses on the bonds. But Mr Lenihan, who met dozens of investors after talks with the International Monetary Fund in Washington, was emphatic that the law would not deal with senior bondholders “under any circumstances”.

Typically, a voluntary negotiation with senior debtholders would involve swapping short-dated bonds for longer-dated ones to help ease financial strain. It is done on a voluntary basis to ensure that it does not constitute a default for products such as credit default swaps.

Even though the two banks are state-owned, Mr Lenihan insisted any decision was for Anglo Irish and Irish Nationwide themselves. “I am a little concerned by the concept of negotiations. Anglo Irish Bank is being run on commercial lines, not political ones and they have to make commercial decisions.”

For all the posturing, we hope Citi holds another mute-impaired conference call with Lenihan in the next 48 hours. This time Zero Hedge promises to record every last second of the festivities.

 


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Mon, 10/11/2010 - 23:35 | Link to Comment knukles
knukles's picture

The US Never Impaired Senior Debt Holders?

Bullshit!

They got screwed by the US Government Itself in the GM and Chrysler thefts.  The UAW, for example, should Never have received any Consideration In Front of Senior Secured and Senior debt holders, which it did.  And what about Fiat's stake? 

No Maass.

A major reason why there is an outflow of foreign capital from the US to safer, more hospitable legal environs.

Tue, 10/12/2010 - 00:01 | Link to Comment frankTHE COIN
frankTHE COIN's picture

o

Tue, 10/12/2010 - 00:41 | Link to Comment Bear
Bear's picture

Too true

Tue, 10/12/2010 - 06:06 | Link to Comment jeff montanye
jeff montanye's picture

and the real injustice is not that gm's bondholders lost but that citi's, bofa's, wf's, jpm's, etc. did not.  crony capitalism is not capitalism.  it is protofascism.

Tue, 10/12/2010 - 07:34 | Link to Comment Jupiter
Jupiter's picture

Ireland is a tiny country. This whole notion that this event is significant is not valid. The magnitude of this event is similar to that of Iceland or Dubai - marginal.

Tue, 10/12/2010 - 08:03 | Link to Comment MarketTruth
MarketTruth's picture

Agreed 100% and remember that Heir Obama of Amerika came right out on National TV and SLANDERED those who held auto industry debt. Obama forced said investors like teacher and police pension funds to take a haircut FAR DEEPER than was legally allowed. In other words, Heir Obama of the USSAmerika is as big a frauderster and the banksters and the Vampire Squid.

GET OUT NOW... but and hold physical gold and silver.

PS: Your 401k is next, the USSA gov is aleady holding talks on stealing it from you.

Tue, 10/12/2010 - 08:42 | Link to Comment tom
tom's picture

knuckles is right that UAW and Fiat received dubiously legal gifts, but the senior debt holders couldn't really complain as without the bailout they would have lost more.

The GM and Chrysler bailouts were heinous, but a whole lot less heinous than the financial sector bailouts. At least the equity was wiped out.

Tue, 10/12/2010 - 17:21 | Link to Comment New_Meat
New_Meat's picture

"PS: Your 401k is next, the USSA gov is aleady holding talks on stealing it from you."


TERESA GHILARDUCCI is on the case!

http://www.newschool.edu/scepa/Ghilarducci_longCV_2009.pdf

Mon, 10/11/2010 - 23:41 | Link to Comment Jim in MN
Jim in MN's picture

Buzz Cuts

Bring It On

I just wish the elite would stop lying about the real issues.  Without honest asset valuation we have no economic system, only a police state.  Nothing else comes close: QE, stimulus, HFT, Mortgagegate, nothing.  No RE/MBS Bond Haircuts is THE policy call in NY/DC.  And it will be our destruction as a society.  No one has ever justified it.  It's incredible when you think about it.....

Thank you Ireland for at least starting a rumor about the real issues.

Tue, 10/12/2010 - 07:35 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

Lies?  The biggest frauds are often how risks are disclosed.  Take this morning's article from Bloomberg. 

Obama Bond Demand Insatiable as Japan Set to Pass China

http://www.bloomberg.com/news/2010-10-12/obama-bond-demand-insatiable-with-japan-poised-to-pass-china-in-treasuries.html

Japan is poised to pass China as the largest U.S. creditor for the first time since August 2008 as growing demand for U.S. government debt reduces borrowing costs for President Barack Obama as the deficit swells.

Please find the fact that the US Federal Reserve is poised to pass both Japan and China to become the largest holder of US Treasuries in a matter of days.  Can't find that info?  Must not be important, because under the inverted pyramid style of journalism less important items are located later in the story, in this instance way down at the bottom under safety.

Investors are seeking the safety and liquidity of U.S. debt as the global economy slows and as governments intervene in foreign-exchange markets to weaken their currencies by purchasing dollars.
   

Holdings of Treasuries in custody at the Fed for accounts including foreign central banks climbed 9.1 percent in the third quarter to $2.48 trillion, the biggest rise since a 16.6 percent increase in the last three months of 2008, after the bankruptcy of Lehman Brothers Holdings Inc. caused investors to abandon all but the safest government debt.

Strange that there is no mention of how this amount relates to China and Japan.

PS:  Gotta love Warren's sales pitch.  Puke.

Tue, 10/12/2010 - 07:42 | Link to Comment 99er
99er's picture

Nobel Prizes For Idiots

(AP) Two Americans and a British-Cypriot economist won the 2010 Nobel economics prize Monday for developing a theory that helps explain why many people can remain unemployed despite a large number of job vacancies.

Federal Reserve board nominee Peter Diamond was honored along with Dale Mortensen and Christopher Pissarides with the 10 million Swedish kronor ($1.5 million) prize for their analysis of the obstacles that prevent buyers and sellers from efficiently pairing up in markets.

Diamond — a former mentor to current Federal Reserve chairman Ben Bernanke — analyzed the foundations of so-called search markets, while Mortensen and Pissarides expanded the theory and applied it to the labor market.

Tue, 10/12/2010 - 10:55 | Link to Comment i-dog
i-dog's picture

These guys have NO shame ... modelling themselves straight from the pages of 'Atlas Shrugged'! James Taggart, Wesley Mouch, Cuffy Meigs, Balf Eubanks, .............

Mon, 10/11/2010 - 23:41 | Link to Comment buzzsaw99
buzzsaw99's picture

meshugana ben didn't impair the agency bondholders because he is a big pussy.

Tue, 10/12/2010 - 00:04 | Link to Comment Miles Kendig
Miles Kendig's picture

That's a monstrous discredit to all the pussies out there buzz.  Just like calling Ben a punk would be a huge disrespect to all of the honest, hard working punks in penitentiaries all across the globe.

Tue, 10/12/2010 - 06:09 | Link to Comment jeff montanye
jeff montanye's picture

so, so true.

Mon, 10/11/2010 - 23:52 | Link to Comment Miles Kendig
Miles Kendig's picture

We'll never impair senior bond holders since it's the job of taxpayers to take the sting out of that nasty old problem of loses associated with speculation.

Tue, 10/12/2010 - 05:54 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

+1

Mon, 10/11/2010 - 23:57 | Link to Comment abalone
abalone's picture

Did China just hike interest rates?

Tue, 10/12/2010 - 00:15 | Link to Comment Buttcathead
Buttcathead's picture

I aint buy'n nuttin till my congressman tells me what to buy...

Tue, 10/12/2010 - 00:16 | Link to Comment QQQBall
QQQBall's picture

First one to default wins.

Tue, 10/12/2010 - 00:17 | Link to Comment Paul Bogdanich
Paul Bogdanich's picture

YES. YEs. Yes.  And the reason they shall do so is because they are Catholic.  "Am I my brothers keeper?" is the ancient question which is again before us to which the Catholics answer "Yes" (under the proper circumstance).  A single human is worth many sparrows but NOT ALL OF THEM!!!

Tue, 10/12/2010 - 00:20 | Link to Comment Rusty Shorts
Rusty Shorts's picture

What fine Potatoes

 

Now, for the real deal.

 

Tue, 10/12/2010 - 00:25 | Link to Comment Bear
Bear's picture

The problem with haircuts is that you have to have one once a month ... or there abouts

Tue, 10/12/2010 - 00:44 | Link to Comment Bear
Bear's picture

Hey, those guys even look Irish.

Tue, 10/12/2010 - 00:26 | Link to Comment Grand Supercycle
Grand Supercycle's picture

S&P500 Financials index has not been bullish for some time. This is a warning.

http://stockmarket618.wordpress.com/2010/09/27/mon-sept-27

Tue, 10/12/2010 - 00:29 | Link to Comment Thorlyx
Thorlyx's picture

Looks like Ireland is the new Iceland.

Tue, 10/12/2010 - 00:37 | Link to Comment snowball777
snowball777's picture

So, if Ireland gives these most senior of credit-whores a housedown, will the rest of the Eewww follow suit?

And what kind of derivative 'events' are likely to be 'triggered' by this bravado?

Tue, 10/12/2010 - 00:42 | Link to Comment HarryWanger
HarryWanger's picture

Again, a non-story containing a lot of "ifs", "coulds, "woulds", etc. As with everything else that's "reported" this way, these non-stories will not be heard from again.

Of course, what we should be looking at tonight is:

Oct. 12 (Bloomberg) -- Asian stocks fell, with the region’s benchmark index dropping the most this month, on speculation China is increasing efforts to cool the world’s fastest-growing major economy.

More "speculations" and "coulds" but definitely much more news worthy regarding our markets and the dollar than non-story out of Ireland.

Tue, 10/12/2010 - 00:44 | Link to Comment Miles Kendig
Miles Kendig's picture

Thanks for the laugh Harry

Tue, 10/12/2010 - 03:43 | Link to Comment taraxias
taraxias's picture

I suppose, Harry, we can pick and chose what "speculation" we should believe according to our book. 

What you posted was good for a laugh anyways.

Tue, 10/12/2010 - 08:26 | Link to Comment reading
reading's picture

Are you the new resident censor that tells us what we can read, discuss and be interested  in and what we can't?  Maybe you should go start your own blog.  

Tue, 10/12/2010 - 00:50 | Link to Comment Jim in MN
Jim in MN's picture

Well, there was this Ireland once upon a moonshine:

As I was goin' over the Cork and Kerry Mountains
I saw Captain Farrell, and his money he was countin'
I first produced my pistol and then produced my rapier
I said, "Stand and deliver or the devil he may take ya"

Tue, 10/12/2010 - 01:06 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Ironically, we (the US) are in a position of being the least serious nation on earth regarding debt and failed credit ventures. Ireland's move to renegotiate debt (if fulfilled), though short term painful, shows a willingness to face facts, adapt and move forward. We, on the other hand, are content to make it all up as we go along, robbing Peter to pay Paul, thinking that somehow we'll get away with it just so long as we can keep a straight face.

Tue, 10/12/2010 - 01:24 | Link to Comment tom a taxpayer
tom a taxpayer's picture

Mr. Murphy: Top o' the morning, Mrs. Clancy.

Mrs. Clancy: Top o' the morning to you Mr Murphy. and where are you rushing to this fine day? You seem upset. Come on now and have a nice cup of tea.

Mr. Murphy: No time for tea, Mrs Clancy. I need to have a word with me banker.

Mrs. Clancy: Oh really now. But you're not much of a talker.

Mr. Murphy: Tis true. I don't have the gift of gab. If you can keep a secret, I'm not going to talk to the banker. I'm going to spit on the banker.

Mrs. Clancy: Well now, I won't be keeping you. Seeing as your going into town, will you do me a favor.

Mr. Murphy: Sure, Mrs Clancy, anything for the sweetest colleen in the Emerald Isle. 

Mrs. Clancy: Please spit on the banker for me...with one of those big gooey gobs I have seen you cough up when you have a mind to.

Mr. Murphy: Consider it done, Mrs Clancy. And an honor it will be to convey your thoughts to the banker. I don't have the gift of gab but I do have the gift of gob.

Tue, 10/12/2010 - 02:00 | Link to Comment gwar5
gwar5's picture

F'n Hilarious!

Tue, 10/12/2010 - 02:16 | Link to Comment Harbourcity
Harbourcity's picture

Mr. Murphy: No time for tea, Mrs Clancy. I need to have a word with me banker.

Mrs. Clancy: Oh really now. But you're not much of a talker.

Hilarious!

Tue, 10/12/2010 - 02:23 | Link to Comment spdrdr
spdrdr's picture

Funnily enough, Tom the TP, the Irish have always honoured their bankers.  In fact, the (pre-Euro) denomination of the Irish currency (the Punt) was originally named in rhyming-slang in direct honour of the banksters. 

Tue, 10/12/2010 - 02:08 | Link to Comment gwar5
gwar5's picture

It'll be interesting to see how the guinea pigs do with this experiment. They might get away with it becasue of their size.

Bad news is they don't have an army.

Tue, 10/12/2010 - 05:10 | Link to Comment doggings
doggings's picture

Bad news is they don't have an army.

lol, they have something every bit as effective

http://www.guardian.co.uk/uk/2010/sep/14/real-ira-targets-banks-bankers

..and surely if "terrorists" are targeting bankers, that must make them "freedom fighters"

 

 

Tue, 10/12/2010 - 02:40 | Link to Comment Troublehoff
Troublehoff's picture

Alternatively, this would also mean the end of the strong EUR regime once again, as the ping-ponging burden of proof of solvency shifts once again to Europe.

 

Disagree. Since when did doing the right thing and not printing weaken a currency?

Tue, 10/12/2010 - 03:03 | Link to Comment TheGreatPonzi
TheGreatPonzi's picture

Do you really believe this will happen? The ECB and IMF will do whatever it takes to avoid any honest resolution of the crisis. The taxpayers will bear the burden, either by the taxes, either by the inflation, as it has always been. I bet 10,000 dollars that the Ireland case will end like the Greek one.

Tue, 10/12/2010 - 06:01 | Link to Comment M.B. Drapier
M.B. Drapier's picture

That's odd. In America public anger never materialized even though taxpayers had to foot a bill which at one point hit roughly $23 trillion, or just under two years of GDP, when all the guarantees were included. It must be something in that Irish diet...

But the Irish banks bailouts have now reached €40-€50bn in certain losses, not just potential liabilities (barring a haircut for seniors). So unlike in the States, where TARP paid for itself dontchaknow, even the bailout advocates here admit that a sum of taxpayer money equivalent to €3tn-€3.75tn for the US (scaled by population not GDP) is simply gone ("dead money" as our Central Bank president agreed). Don't worry though, every time the losses go up we're reassured that the new figure is, quote, 'manageable'.

In any case, there's nothing new in Lenihan's FT comments, I'm afraid. Ever since 30 September the chaps in charge (including Lenihan as well as Elderfield the financial regulator) have been making these hopeful noises about negotiating with bank seniors, and at the same time crying louder than ever that the bank seniors will never, never be given an involuntary haircut. (Lenihan keeps suggesting that because senior creditors rank equally to depositors here (true, just as in the UK) the government can't compensate depositors without similarly compensating seniors (horseshit).) If there's any substance at all behind the hopeful noises, it's more likely to be a "voluntary" restructuring dictated by (most likely) Berlin to its banks, and/or a push by one or more European-mainland banks to finally get its hands on a significant equity stake in an Irish bank. (The Irish authorities love to protect their darling banks from foreign takeovers and competition. The Central Bank allowed the Big Two (BoI and AIB) to massively expand their lending in order to prevent HBOS from gaining market share here. Mission Accomplished!)

Tue, 10/12/2010 - 05:41 | Link to Comment Macker
Macker's picture

Well said M.B Drapier.

Tue, 10/12/2010 - 05:51 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

"as the ping-ponging burden of proof of solvency shifts once again to Europe."

why I read ZH. 

Tue, 10/12/2010 - 06:16 | Link to Comment 99er
99er's picture

Chart: ES

It's all China's fault...it really is!

http://99ercharts.blogspot.com/2010/10/es_12.html

Good luck!

Tue, 10/12/2010 - 06:30 | Link to Comment 99er
99er's picture

Chart: DX

It's Japan's fault, I swear!

http://99ercharts.blogspot.com/2010/10/dollar_12.html

Tue, 10/12/2010 - 06:38 | Link to Comment Lord Welligton
Lord Welligton's picture

M.B Drapier

Correct unfortunately.

More smoke and mirrors.

I thought this was for domestic comsumption really.

"Can there be discussions between banks and senior bondholders for mutual advantage?"

Utterly meaningless.

Why would anyone believe anything coming from Lenihan?

He's been wrong from the outset.

 

 

Tue, 10/12/2010 - 06:39 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

I guess the ECBs plan to reduce world commodity consumption by engaging in Irish austerity has not worked out.

If we were just a little bit bigger we could have made a difference.......

Tue, 10/12/2010 - 06:46 | Link to Comment 99er
Tue, 10/12/2010 - 06:55 | Link to Comment Goldenballs
Goldenballs's picture

Its either that or live as slaves to the debt for years and years.The banks should have been allowed to go,haircuts alround,what we see now is crisis management to delay the inevitable,the debt is in the long term unpayable,austerity will create huge social problems which along with rising basic commodity prices and inlation will cause utter chaos,when this occurs default will be a better option than anarchy.Coming to a neighbourhood near you very soon.Apart from QE the implications for lenders with real cash are already happening they refuse to lend to basket cases or if they do its supposedly insured,who is going to pay out when everybody is claiming.No easy way out of all this apart than to remember as a nation when the brown stuff really hits the fan you have to look after your own.The EU for Ireland was a poison chalice and still they learn not,6% rise in budget next year,the sooner nations default on their payments to the EU the better. 

Tue, 10/12/2010 - 06:56 | Link to Comment curious1
curious1's picture

Don't you find this funny:

Faber’s recommendation on stocks is shared by Warren Buffett, the billionaire chairman of Omaha, Nebraska-based Berkshire Hathaway Inc. Investors buying bonds now “are making a mistake,” he said Oct. 5 at Fortune magazine’s Most Powerful Women conference in Washington.

Tue, 10/12/2010 - 07:53 | Link to Comment unum mountaineer
unum mountaineer's picture

so three quick questions: a.) with mortgagefubar-gate are senior bond holders not being impaired  by the molasses in this revelation? I mean juniors are benfiting over the senior holders...

b.) Is the beer pong game between EUR and USD not EXACTLY what it was intended for?

c.) which first "loser" will have to drink the beer at the end of the game? For the second loser, what, they have to drink the left over larry after its been sitting out all night after game?

I'm a novice dorito eatin' slob... Am I missing something? just askin'.

Tue, 10/12/2010 - 12:09 | Link to Comment callistenes
callistenes's picture

"While the US never impaired the senior debt"

Yeah, unless you were unfortunate to have GM or Chrysler senior debt.


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