So much, perhaps, for that scary September of bank refinancing.
Reuters reports that Ireland “signalled” on Wednesday, that it’s seeking to extend its guarantee of Irish bank liabilities, started in response to the late 2008 crisis. It’s the erm, obvious and simple solution, to the problem of a looming €25bn refinancing. Ireland’s Credit Institutions (Financial Support) Scheme is due to end in September. A smaller scheme has already been extended to the end of this year.
There are a number of moving parts here. First off, Ireland will have to apply to the European Commission for any extension of state support. At the same time, bank refinancing jitters have been made worse by another Irish government initiative — Nama.
Nama haircuts have been increasing, which means Irish taxpayers save on Nama expenses, but banks receive less in Nama bonds. That in turn, means they have less to pledge at the ECB’s liquidity facilities, and puts further pressure on Ireland’s financial sector — just as the banks need to refinance.
BNP Paribas FX team has a nice — albeit cynical — angle:
Meanwhile, Anglo Irish and Allied Irish, which have refinancing requirements of EUR25bln, and the government of Ireland itself, have quietly request an extension of the European Commission bank guarantee program which bailed out the country back in 2008, and which is needed to bail it out all over again. Note, despite the Irish government doing all its funding for this year Irish spreads have widened out to new records, trading near 357bps above Bunds. The Irish government has supported its banking sector by providing [Nama bonds] which banks repo with the ECB. Hence, the ECB became the effective cash provider for the Irish banking sector. For this system to work, the ECB must provide unlimited access to its refinancing facilities. A couple of weeks ago, ECB’s Weber surprised markets by suggesting that unlimited access to ECB funds should be extended until the end of the year. The motivation for Weber’s intervention is that he wants to defend German interests. What Germany fears most is the activation of EMU’s EUR440bln rescue package. Once activated it invites abuse in the hope that surplus countries such as Germany will ‘pay the bill’. EURGBP longs remain our favourite trade.
‘Unlimited.’ ‘Extended.’ We’re sensing a theme here.
Related links:
Ireland shakes, rattles and rolls - FT Alphaville
ECB, Nama bonds and the Irish banks as issuers of sovereign debt - The Irish Economy
Credit distortion de crise – FT Alphaville