Burning bondholders ‘could have saved the State €9bn’

Banking inquiry hears NTMA advised Government of possible savings in March 2011

The State could have saved more than €9 billion by imposing losses on senior debt holders at the six Irish banks, the National Treasury Management Agency (NTMA) told the Government in March 2011.

Written evidence supplied to the Oireachtas banking inquiry shows the NTMA, which manages Ireland’s national debt, advised the Government that “immediate steps” could be taken to enable this burden sharing, adding that markets had already priced this haircut into the bonds.

But it also warned that there could be potential implications with “external authorities”, a reference to the European Central Bank, which had warned Dublin a “bomb” would go off if it was to do so.

The failure to impose losses on senior bondholders to recoup some of the cost of the €64 billion bank bailout has been a source of political controversy since Fine Gael and Labour entered Government.

The NTMA estimate of potential savings is higher than previous suggestions about what could have been clawed back.
Instead of imposing haircuts of the scale suggested, Minister for Finance Michael Noonan drafted a plan for burden sharing of €3.7 billion worth of unsecured, unguaranteed senior debt connected with IBRC (the former Anglo Irish Bank and Irish Nationwide).

However, he pulled it at the last minute after the ECB warned that it would cut the billions in emergency liquidity assistance that had been advanced to Irish banks.

This was the second time that the ECB had blocked attempts by Ireland to burn senior bondholders.

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