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« High River Gold Mines Limited Up another 4.65% | Main | Welcome to the Mania »

Anglo Irish Bank: We Need a Few More Euros!

Anglo Irish Bank 1 October 2010.JPG

Another bank in need of a mega bailout from the European Union, where operational guide lines are becoming a distant memory and the ability to wall paper over the cracks is creating more tension within the eurozone.

First we have this take on the situation from the telegraph:

The investors are attempting to force the Irish authorities to pay them more for the debt they hold in Anglo Irish Bank and say if their demands are not met they could trigger a default crisis.

The London and US-based hedge funds are fighting moves to pay them no more than current market prices for their holdings of junior debt in Anglo and are understood to be prepared to take the Irish government to court.

Anglo junior debt is trading in a range of 23 to 25 cents in the euro and the investors are thought to be looking for a payout of 35 to 40 cents. However, the authorities are unwilling to offer a premium to the market price, according to a source close to the Irish government.
The hedge funds in turn argue that the government has no legal right to force them to accept a haircut on the value of their holdings.

The dispute centres on £2bn of Tier 2 bonds sold by Anglo, which the hedge funds argue are governed by English law. They claim that for investors to be legally obliged to accept a lower than face value payout, the bank's senior debt – which the government has said it will pay back in full – must already be in default.

While small compared to the total size of the Irish rescue package, the dispute could have disastrous consequences for the bail-out.

If the hedge funds were to press their case, Ireland could be required to put Anglo into insolvency, which could ultimately mean that depositors would have to make use of the country's guarantee scheme to get their money back.

One banker with knowledge of the discussions said the legal opinion his firm had received was that the Irish government was in the wrong.

Robin Creswell, a senior bond specialist at fund manager Payden & Rygel, said investors trying to force the government's hand were playing a risky game.

"They might have a good legal claim, but when you are dealing with a government in the position of the Irish that will go to great lengths to prevent default, you are entering a very complex situation."

The cost of bailing out the Irish banking system has so far cost the state €44bn, and this year the country's budget deficit is projected to equal 32pc of GDP – 10 times the amount permitted under European Union guidelines.

Speaking on Thursday, Irish finance minister Brian Lenihan was clear that while junior debt holders would make a "significant contribution" to the cost of the bank bailouts, depositors and senior debt holders would be protected.

Mr Lenihan attempted to calm market fears over the effect the cost of the bailout would have on the country and said the government would be publishing a four-year budget plan in November on how it intends to cut the deficit.

Ireland is not the only eurozone country coming under pressure from the market, with Moody's yesterday cutting the credit rating of Spain over fears of weak economic growth and the government's ability to reduce the deficit.

Over at The Independent we have this snippet:

The announcement, by the Finance minister, Brian Lenihan, that Ireland's financial woes were even worse than thought has reignited fears of a repeat of May's "contagion" when the financial crisis in Greece spread to the vulnerable economies of Spain, Portugal, Italy and Ireland, sending the cost of borrowing in those nations spiralling. Then, as now, investors are assessing the growing risk that a eurozone member will default on its debts – a calamity for the EU. Mr Lenihan had to spend half-an-hour on the phone to fellow European finance ministers trying to reassure them there is "no question" that Ireland will have to seek external help, saying the nation is "fully funded".

The situation is dire and appears to worsen with every announcement or new assessment. Print more money and shovel into banks to prop them up. The truth is that we don't know the extent of the real damage to these balance sheets and they either don't know or are too afraid to tell us about the magnitude of the mess. Joe Public will be drip feed bad news only when its absolutely necessary and unfortunately we can only conclude that there is more to come.
To protect yourself from these buffoons keep acquiring both gold and silver in order to protect yourself.

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OptionTrader Profits

Stay on your toes and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

On Friday, 27th August 2010, we closed another successful trade banking a profit of 79.46% on Call Options on Silver Wheaton.

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09. On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days, with more positions opened yesterday. Drop by and take a look.

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