Europe debt crisis rolls on as Irish bailouts grow
Economist Lucey said Ireland was needlessly tying its future fortunes to keeping all senior bondholders happy. He said bondholders should be forced, on a case-by-case basis, to accept punishment for the risks they took in loaning to Irish banks.
“We haven’t been told who owns this senior debt,” he said.
The biggest surprise in Thursday’s announcement was confirmation that Ireland has conceded it will effectively nationalize Allied Irish Banks, once the country’s largest financial institution but now so weakened by loan write-offs that it cannot borrow on international markets.
Allied Irish has been trying to prevent majority state ownership by selling off its foreign assets, including a Polish bank and a stake in M&T Bank of New York. But the Central Bank report dramatically raised Allied Irish’s cash requirements by the end of the year to euro10.4 billion, up from Irish regulators’ previous requirement of euro7.4 billion.
As a result, two senior Allied Irish executives announced their resignations Thursday and Lenihan said the government expected to fund that euro3 billion shortfall in addition to its existing euro3.5 billion investment.
Analysts said the outcome would mean the mass issuing of new Allied Irish shares to the government, creating a stake exceeding 90 percent.
Allied Irish shares initially plummeted more than 30 percent, but rallied, closing down 8 percent at euro0.51.
The Central Bank announced that another state-seized Dublin lender, Irish Nationwide, also will receive euro2.7 billion more, doubling the amount already spent by the government to keep it afloat.
The government plans to split Anglo into two banks, one to retain its deposits, the other to manage the disposal of euro37 billion in largely defaulting loans on property assets in Ireland, Britain and the United States.
The Central Bank warned that, under “a severe hypothetical stress scenario,” the long-term Anglo bailout bill could reach euro34.3 billion.
The bank said this worst-case scenario would involve the bank’s loans on property-based assets losing 65 percent of their original value and remaining at that level in 2020. Ireland’s property prices are currently 35 percent to 50 percent below their 2007 peaks.
Irish Nationwide is expected to be sold to foreign investors or merged with one of Ireland’s two remaining healthy banks, Bank of Ireland or Irish Life & Permanent
