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Risk Off On News Ireland Negotiating With Bondholders Over Anglo Irish Default, As Country Prepares To Call In IMF
And the euro seemed so happy after its recent surge, that it completely forgot it is backed by an insolvent continent. Luckily, here's Ireland to remind us stuff is much, much worse than expected. According to the Irish Independent the Labour Party, Eamon Gilmore, came very close to suggesting that Ireland is considering defaulting on its debts "when he talked about the Government "negotiating'' with bondholders in Anglo Irish Bank." Additionally, the same newspaper also reported that Ireland is on the verge of calling in the IMF for a bailout, citing "a report from Barclays, one of Europe's largest banks, said Ireland may yet need financial help from the IMF or the EU if conditions got any worse. But a spokesman for Finance Minister Brian Lenihan said last night: "The Government's strategy for dealing with the economic and financial challenges has been commended by the EU Commission, the European Central Bank and many other international experts." In other words, domino #2 has at most a few more days. Net result of all this: Irish-Bund spread explode, and gold hits a new all time high of $1,282.
More from the Independent:
While there is almost unanimous agreement now that the subordinated bondholders should be either given nothing or very little by the Irish State, the more pressing issue is whether Ireland, which now owns Anglo, should welch on obligations to the senior debt holders, most of them German, British and French asset and pension funds.
Mr Gilmore said he was not recommending a default on these debts, but instead was suggesting negotiations begin with the holders. This suggestion has a populist ring to it, because as long as the bondholders don't absorb any losses, it means all of the Anglo losses are absorbed by the Irish taxpayer instead.
But Mr Gilmore's problem and the deficiency in his argument is a lack of detail on how such an approach would work. Presumably the negotiations would be aimed at forcing some of the losses on the bondholders, otherwise there would be no point in such conversations.
The problem is that technically Anglo would be defaulting on its debts if it tried to get the bondholders to accept anything less than what they are owed.
Of course, Mr Gilmore (and his position got some support from Barclays last night) has some options. One is to simply press to reduce the total amount owed to the bondholders, allowing Anglo to book a gain from having to pay out less interest than originally agreed.
The second approach, one championed by the 'Financial Times', is to tell the bondholders you intend to swap their bonds for shares in Anglo.
This would effectively leave the bank, which is a heartbeat away from technical insolvency, in their hands. This is known as a debt-for-equity swap and is very common in downturns when companies run into problems. Technically it is also known as a distressed exchange offer. This approach could be taken, but again it comes with significant risks which need to be acknowledged by political commentators like Gilmore and others pressing for this course of action.
The problem with this idea is that there is no way Anglo Irish Bank is worth €16.5bn at the moment. So if the bondholders swapped all their bonds for Anglo shares they would be settling for less than par value. This is a selective default.
Of course, the big danger is not what would happen in Anglo if this course is taken, but what would happen at the other Irish banks. By how much would their fund-raising costs go up? The answer, of course, is nobody knows, including all the commentators who give views on this subject regularly.
The punchline:
The final danger is: would an Anglo technical default raise the funding costs for Ireland Inc itself? Again it is hard to say. There are two schools. One suggests that by cutting Anglo loose, Ireland becomes a better credit risk and funding costs could actually drop.
Others suggest once you welch on any debts, your funding costs elsewhere rise and you may even be locked out of the bond market entirely.
While Mr Gilmore's contribution is welcome, it is only right that he spell out the huge unknowns embodied in the approach he has recommended.
Lehman deja vu.
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How much you want to bet someone knows the CPI numbers will make the market believe QE isn't coming next week (even though that should be obvious by now) and today will be one of those "smell blood" days:?
130 even in the euro today?
hell, I'll go with 1.2977 just for fun!
When is Greece going to have to rollover debt again ?
Is Ireland going to give "haircuts" to bondholders before Greece ?
Las Vegas Odds Keepers are potentially on the hook here ! LOL
The Las Vegas bookies will be taking odds on the state of Nevada's chance of default;>)
Countries defaulting in europe like Iceland, Ireland and Greece are just macro mirror images of countries/world to states/us and then to the small macro municapalites/states and finally the micro= people/towns.
Bottom up analysis or down, defaults will be the new fad. Everyone is doing it with credit cards and mortgages, and countries will do it with bonds. It is all connected. Debt must disappear; the system demands it.
You misspelled a word. That is Manipupalities. We all live in manipupalities now. I don't mean to be too anal with this spelling correction, I normally just let stuff go.
Yep, like the maipulated home values to collect extra property taxws. There as bad as the banks mark to whatever.
yep
like the manipulated
home values
to collect
extra property
taxes
there
as bad as the banks
mark
to whatever
Manipupalities: Another reason to visit often -- it expands your vocabulary.
JustPassingThrough
That's funny!
When Irish Eyes Defaulting...
... would an Anglo technical default raise the funding costs for Ireland Inc
A "technical default" - not like a real default, you see. And why should there be consequences? I mean, what bastard is going to punish a fine, upstanding welfare state over a teensie weensie technical default?
Aarrggh, Where's me pot a gold?
Amazing. The game plan is to take off of the front pages:
1. Dubai
2. Greece
3. Ireland
4. Spain
5. Illinois
6. California
Remove all the deadbeats off page 1, diminish the worldwide deterioration in CRE and Residential real estate, claim stability and print dollars.
Sounds like a formula for computers to continue their non-stop circle jerk to me.
Read my lips: there will be NO default.
Iceland Bitch!
Read Martin Armstrong's lips.
Good morning Mr. Shorts.
Its ok. Mrs Bernanke will cook for the members of the EU, a nice pot of Corned Beef and Cabbage with a slice of Irish soda bread. Mr Bernanke will wire them some nice freshly printed US Dollars and stick us with the Bill. All good. Rally on
QE2 stoking the boilers w CPI. Exp Mich Sent to plunge and set the call to cast off lines. Buy stocks.
I'm sick of these lying fucks. Japan and China catch US with cooked debt issuance. Japan does currency intervention but nothing works like it should. They are all lying through their teeth about everything.
I bank on it.
We did not see your 1288, but we did see 1282. Not an awful call friend.
Ya but their stupid freaking system of creating and destroying leverage makes it impossible to track the cause/effects. As drastic as they got though I'm just pissed that platinum isn't going off like a rocket indicating that there is nothing moveable in the system as far as gold and silver goes. I just wish china and japan and russia would nut up and bust their chops with huge currency dumps forcing them to explain themselves.
Burn, burn!
They should default. And when they do they should tell the central banking monster to go fuck itself.
Why yes, yes they should!
CENTRAL BANKING MONSTER, GO FUCK YOURSELF.
Ireland, you are not "at fault" if you default.
Put the "ire" back in Ireland.
Yes my Irish cousins, if you have any piss and vinegar left tell those Euro socialists where to go by defaulting. It is your best option, just like Iceland. If not, economic slavery will ensue as in the past from the Brits.
"But a spokesman for Finance Minister Brian Lenihan said last night: "The Government's strategy for dealing with the economic and financial challenges has been commended by the EU Commission, the European Central Bank and many other international experts."
Yeah, yeah, yeah...four wheels on the wagon but no spare in the trunk and there's a row of rusty nails a short way down the road...
Let's hope this wont affect the production of Guinness or things will start getting really serious!
Black gold bitchez!
Gold and Silver are the place to keep your money now.
Make sure its physical!
Here is an interesting story and a conversation I had yesterday with an Irish citizen now residing in the U.S.
I had been discussing visiting Ireland sometime in 2011 since my father is considering upon retirement in a few years taking his modest pension, SS benefits related to 40 years in the union and retiring to Ireland. Since both his grandparents are Irish born he is eligibile for dual citizenship and is undergoing efforts and securing documentation such as their marriage license in order achieve this.
So the Irish citizen I spoke told me the following. If my father becomes a citizen of Ireland regardless of him residing in New York & the U.S. his entire life once he is of retirement age in Ireland and if he is a citizen who has resided for 6 months in Ireland he can apply for Irish pension and as a senior would enjoy free television,free medical care along with free transit passes.
Perhaps Dork of Cork can confirm this but I could not believe my ears and I instantly thought to myself no wonder they cannot pay their debt.
jeez, maybe we should send more boomers there?
He would be entitled to a means tested benefit. If he passed the means test, he would then also be entitled to the household benefits package (which provides a reduction in some state imposed charges as you outline above). The means test is reasonably stringent and would take into account his income from his pension and his US SS. He would also, I believe, have to become habitually resident in Ireland. This used to take two years, I am not sure what it takes now.
Ireland is not a country I would choose to grow old in without family. The services available are appalling (whether public or private).
I'm a first generation "aroback" as we're called by the irish, I never realized about the pension & al.
I still have a lot of relatives over there on both sides.
Does the benefits come with potatoes?
http://www.youtube.com/watch?v=6GO-irf4ZP4
Pah.
Anglo is no Lehmans. It may be systemic in Ireland, even that is in doubt unless you are a financial backer to (and receiver of favours from) the current government. The problem is not Anglo as much as it is the deficit. The banks are all zombies. Bailing them out is adding to the deficit without getting any movement of credit in return. Ireland would have done better to adopt the Icelandic approach - Too Big To Save...
It wouldn't have stopped the deficit being a problem, but it would have increased scope for the slow adjustment process that was originally planned (under 3% of GDP by 2014). As it is, the vast increase in bank bailout costs (entirely predictible, by the way) now demand greater and swifter fiscal adjustment. The result will be increased taxes and decreased government spending, particularly capital spending. Neither are going to do much for a recovery, but at least we can hope that the piggies that have been at the trough will cease to get their rich-people's welfare from the state.
I can't comment on the time it would take to be accepted into the system but once it kicks in he can expect the benefits mentioned and then some. He wouldn't exactly be living high on the hog but he can expect to have Electricity, Phone, small pension, medical and a couple of other benefits that are a lot better than here. TV I don't think so but it's a small country and hulu.com and rabbit ears work just fine.
Keep in mind the system is broken and it's not getting fixed any time soon. So I wouldn't be buying a house over there until the dust settles.
What I do like is the fact that someone is talking about defaulting. Even if it is just talk it's unfair to saddle a people with the debts of the bankers so that the bankers can continue to do business.
Ireland has been used as a test market for a lot of toys that eventually make their way here. Maybe it will be a test market for sovereign default as well.
Coming up next, each minister starts promising that Ireland absolutely does not need a bailout and that the Greek bailout never happened.
This should be the confirmatory that there will most definitely be a bailout.
Cnbs just had breaking news saying this was all unfounded and a rumor not true
http://www.bloomberg.com/news/2010-09-17/irish-government-bond-spread-sw...
I found lots of interesting information here. I love zerohedge.
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