Politicians – Misled or Misleading on Anglo.

We don’t have to pay a cent to the Anglo junior debtholders but we probably will. Below I walk through why the Government are either misled or misleading and opine on how we can avoid payment. We have a legal template, which could be tabled. FF should continue to drink its tall glass of STFU on Anglo, so it is down to the opposition. Sinn Fein are busy posturing on meaningless motions on the Taoiseach, the anti-austerity-unless-its-a-party-leaders-allowance-before-logic-party is doing whatever it does, so really its down to people like Shane Ross, Stephen Donnelly, Tom Pringle and so on, the (apparently ) concerned left and right, to table this. 

Late last week the news began to leak out that the Anglo Irish Bank unsecured junior bondholders might, in certain circumstances, see repayment. When we say leak we mean “stated on the record of parliament by the finance minister that they might”. He stated in parliament

“Should the junior bondholders submit a claim and it be found to be valid, then they will legally be entitled to a dividend provided there are sufficient funds available. Unsecured creditors will get paid if there is money, but there is a ranking order and it is not clear yet whether the €280m worth of junior bondholders will pursue their claims as creditors, whether they can validate their claims as creditors, and, if so, if there will be any money left over when other unsecured creditors are paid,”

 

No wonder that he had his head bowed as he read that into the record. Recall that Anglo went belly up, costing the state north of 30b; that there is only a prospect of this liquidation yielding money for the most junior capital as the deposits were moved out; that the state is still paying and will pay 25b for Anglo over the next decades via the conversion of the admittedly illegal FF government issued promissory notes into legal FG/Labour issued government debt; that there was an agreed settlement which some bondholders refused to accept; that this debt is no longer held by the original claimants; and that there is no prospect of the 25b ever being repaid. Bearing that in mind, the Anglo statement caused a bit of a kerfuffle.

A host of government officials responded. The Tánaiste (deputy PM) said

“It is completely unlikely to happen because in the queue before the junior bondholders are the Irish people.”

Ms Burton is a qualified accountant as well as a politician, and a casual reading of that might suggest that the 25b would be first to be repaid. The accountant, of which she is one, would say no, it is the 1.1b owed to the state as fees under the various guarantees. 1.1b <25b.

The deputy finance minister stated

““I understand that the subordinated junior bondholders account for about €280 million but the Irish tax payer, the Minister for Finance is owed if you like as an unsecured creditor, €1.1 billion . The issue of junior bondholders will only arise if that €1.1 billion is paid in full along with unsecured creditors. I think it’s a highly unlikely situation, it is one’s that’s highly unlikely to be resolved for a long number of years due to various issues of litigation”

 

Minister for Health Leo Varakar, and Minister for Transport Pascal O’Donaghue made similar statements (see the video here) that they were at the “bottom of the pile”

 

Finally the Taoiseach said

“I do not see any circumstances, any circumstances in which junior bondholders will be paid out of the liquidation of IBRC.”

So the only definitive statement was that of the Taoiseach. The rest, they equivocated. And, the Taoiseach was probably wrong…

Then, this morning, in the Irish Times we see an extraordinary and excellent article which blows apart this  “it might happen, but it probably wont” argument”. I should also mention the super David Sleator photo accompanying it, which I have gleefully used, a picture that tells a thousand words.  Walking through the claims on Anglo they conclude that there is indeed enough there to pay at least 70c in the € for the bondholders. This explains why in recent weeks the price of this distressed debt has tripled. It is also comforting to note that amongst those now piling into this speculation, the market betting that the government will indeed pay, are “Irish investors”. Patriots all we assume…

This raises some issues. One would like to assume that the cabinet and the members thereof have better information on this financial Chernobyl than the Irish Times. So why have they been saying that which they have been saying? Are they misled, or are they misleading us? Or are they Rabbitting – saying things in the run up to election knowing you will not hold to them and hoping that the goldfish memory of the electorate will not punish you.

It would be an obscenity to pay a cent on this debt. It is the dictionary and common usage definition, the exemplar, of odious. But, wait and see, the “sure it’s the law yerrah what can we do” and the “ah shure these fellahs have a contract” tropes will be trotted out. Here is a way to stop the payment.

The Irish Examiner has a post that suggests some legislative measures will happen but there is no detail. Let me help….The Financial Emergency Measures in the Public Interest 2014 could be enacted within an hour, Modeled on the Financial Emergency Measures in the Public Interest (No. 2) Act 2009 it would have the following sections

1. Define a junior bondholder in IBRC
2. A table of reductions in payments to same (5% for agreeing to take it and go away, one week deadline from enactment, else 0%)
3. This applies to all bondholders so defined
4. Its hard to overrule
5. Overpayments shall be taken back

Plus some technical issues.

Would it survive scrutiny in the courts? I am not a lawyer but the 2009 act of which this is a direct transpose was not overturned. If it is good enough and meet enough to cut pay and contracted service agreements for public sector workers and service suppliers, why is it not so for vulture fund investors in a dead bank?