Del Bail-Out al Bail-In, Europa debe prepararse para el default
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Autor: Mateo Mathaus
John Glover and Michael ShanahanNov 11, 2010 5:17 am ET
(Updates prices in third, 10th paragraphs.)
Nov. 11 (Bloomberg) -- The cost of insuring the bonds of Irish banks soared to distressed levels amid concern that the government won’t be able to afford the cost of bailing out the nation’s banks.
Irish and international banks’ loan losses in the country may total least 85 billion euros (7 billion), central bank Governor Patrick Honohan said in Dublin yesterday, Morgan Kelly, an economics professor dubbed “Doctor Doom,” said on Nov. 8 that mortgage defaults may push the cost of Ireland’s bank bailout to 70 billion euros, more than the government’s estimate of 50 billion euros.
Credit-default swaps on subordinated debt of Allied Irish Banks Plc, the nation’s second-largest lender, are 57 percent upfront and 5 percent a year, meaning it costs 5.70 million euros in advance and 500,000 euros annually to insure 10 million euros of the bank’s debt for five years. Swaps tied to the subordinated debt of Bank of Ireland, the country’s biggest bank, cost 31.5 percent upfront and 5 percent a year.
“Concern seems to be mainly targeted at Ireland and its banks and everything looks like it’s going against them at the moment,” said Simon Adamson, a bank credit analyst at CreditSights Inc. in London. “Whatever they say to reassure people, it doesn’t seem to be having any effect.”
Honohan said there’s no “hard indication” in the level of mortgage arrears that estimates of arrears used in bank stress- tests earlier this year will be exceeded.
More than a third of mortgages and half of the buy-to-let loans originated by Irish Nationwide Building Society, which the government seized in March, are in arrears, the Irish Independent reported yesterday.
Dublin-based Ronan Sheridan, a spokesman at Allied Irish, Sheila Gahan at Irish Nationwide and Bank of Ireland spokesman Dan Loughrey declined to comment.
Irish Finance Minister Brian Lenihan said Sept. 30 that while holders of subordinated bonds would be expected to share in the cost of bailing out Irish Nationwide and Anglo Irish Bank Corp., the two government-controlled lenders, the government wouldn’t inflict losses on bondholders of banks with publicly traded shares, such as Allied Irish. Anglo Irish is offering holders 20 cents on the euro for its so-called lower Tier 2 notes while Irish Nationwide hasn’t said what it plans to do.
Credit-default swaps on the junior bonds of Allied Irish are signaling that full government ownership of the lender is “all but fully priced in” by traders, according to Credit Agricole SA.
Contracts on Allied Irish senior debt soared 99 basis points to 1,008 basis points yesterday and were at 1,018, while swaps on Bank of Ireland, which yesterday jumped 42 to 741, weren’t immediately available.
The Irish banking crisis helped drive the benchmark Markit iTraxx Financial Index of default swaps linked to the senior debt of 25 banks and insurers up 6.5 basis points to 151, the highest since June. The subordinated index jumped 13 basis points to 239, also the highest since June.
Irish 10-year government bonds fell, widening the yield spread with benchmark German bunds by 32 basis points to 651 basis points, a record, according to generic data.
A bailout of Ireland through the through the European Financial Stability Facility would resolve market tension and not lead to contagion, according to Goldman Sachs Group Inc. strategists. Such a move “may mark a resolution of ongoing European Monetary Union sovereign tensions,” Francesco Garzarelli, chief interest-rate strategist at Goldman in London, wrote in a research report.
“The market may push the Irish government into doing something to relieve the pressure,” said Adamson at CreditSights. “It’s very hard to resist this sort of pressure.”
--With assistance from Gavin Finch and Matthew Brown in London. Editors: Paul Armstrong, Edward Evans.
Fecha: 11/11/2010 12:00.