Ireland will unveil on Thursday a fresh taxpayer-funded recapitalization of Anglo Irish Bank, the institution at the centre of the country’s property meltdown, amid rising alarm over the country’s financial health.
on Tuesday hit record levels with yields on 10-year government bonds jumping 25 basis points to 6.72 percent.
Irish bond yields for 10-year debt are at similar levels to Greece at the start of April – only a month before Athens was forced to turn to the international community for loans.
The rise in yields came in spite of buying from the European Central Bank to help stabilize the markets, according to traders, as investors worried that the cost of bailing out Anglo Irish and other financial institutions would be higher than first thought.
The central bank’s additional capital injection is expected to be about €5 billion ($6.8 billion). That would bring the bail-out costs for Anglo Irish to €30 billion, shy of the €35 billion forecast by credit rating agency Standard & Poor’s.
Brian Cowen, Ireland’s prime minister, said: “We are determined to do what’s necessary to achieve international confidence and build domestic confidence.”
As part of a choreographed series of announcements, Brian Lenihan, Irish finance minister and the legal shareholder of the nationalized bank, will announce plans to meet tougher capital targets, including a restructuring of part of Anglo Irish’s €16 billion bond debt.
The announcement coincides with the expiry of Ireland’s two-year blanket guarantee for bank liabilities at its six domestic lenders, introduced in September 2008 to prevent a run on Anglo Irish.
It follows the earlier decision to split the bank, with deposits and other guaranteed bonds remaining with a savings bank.
The unguaranteed bonds – about €4.2 billion of senior bonds and €2.4 billion of subordinated bonds – will be held by an asset-recovery bank managing loans left behind once Anglo Irish’s worst property assets have been offloaded to the National Asset Management Agency. Mr Lenihan has said that a default on senior bonds is “unthinkable”.
“Even if the government can persuade markets that it has already committed enough money to put the banks back on an even keel, its troubles are far from over,” said Ben May at Capital Economics.