Irish Nationwide Now Engaged In "Micro-Quantitative Easing" As It Issues Bonds To Itself To Repay Interest

A new report in the Irish Times discusses how Irish Nationwide, where incidentally sovereign CDS spreads just hit a fresh all time wide record north of 400 bps, discusses how the insolvent bank, in a supreme example of just how prevalent ponziness has become in the current Central Bank subsidized environment, is now issuing bonds... to itself. In a circular issuance scheme that would make the Greek finance minister blush with envy, "Irish Nationwide has issued €4 billion of Government-guaranteed bonds effectively to itself. It can use the bonds to draw €4 billion in funding from the European Central to help tide it over a key refinancing period later this month." At its core, the scheme is nothing new, having been used repeatedly by Europe's most bankrupt countries, although the small scale in this case, and the blatant inability to even cover up the circularity has many worried that if the ECB needs to step in for such "modest" amounts to preserve bank solvency, it is all pretty much just a matter of time before it is game over for Ireland's banks. And elsewhere, confirming that defaults are imminent, the CFO of Anglo-Irish has just said it would be a disaster to default on its bonds. He is, of course, absolutely correct.

More from Irish Time:

The building society has €4 billion of debt covered under the original blanket Government guarantee maturing at the end of this month. The bonds will allow the building society to draw fresh funding from the ECB if necessary to repay this debt against a backdrop of heightened funding pressures across the guaranteed institutions.


A spokesman for the building society insisted Irish Nationwide had sufficient cash to repay €4 billion of guaranteed debt which must be repaid later this month.

He said the listing of the bonds was to “improve the liquidity of Irish Nationwide” ahead of the building society shrinking radically as a consequence of the transfer of €9 billion in loans – more than 80 per cent of its loan book – to the National Asset Management Agency and the receipt of Nama bonds to improve liquidity.

It is understood that Irish Nationwide will start drawing ECB funding using the bonds as short-term collateral this week and will refinance the debt with Nama bonds as they are issued before all loans are transferred by February.

For those seeking a good soundbite to summarize the ongoing sticksave attempts by the ECB in broke peripheral countries, here it is: "Micro.Quantitative.Easing"

One bond analyst said he had never seen a funding transaction structured in such a way, describing it as “a type of micro-quantitative easing” – a means of allowing a central bank to print money to support an institution.

“You could say it is innovative in some respects – it gets them through the September 2010 refinancing,” said the analyst.

A spokeswoman for the Central Bank said it did not comment on loan facilities given to institutions.

“Where an asset class is eligible for ECB borrowings, the Central Bank will provide funding on behalf of the Eurosystem, in accordance with the rules and procedures agreed by the Eurosystem,” she said.

h/t Ciaran