Bloomberg News

Noonan Steps Up ECB Pressure as Irish Plan Bank Debt Deferral

March 30, 2012

Irish Finance Minister Michael Noonan said the government is seeking a European Central Bank commitment to provide “continuing low cost funding” to the country’s financial system, after he yesterday eased the immediate burden of repaying the nation’s banking debt.

Noonan yesterday laid out plans to effectively sidestep a 3.1 billion-euro ($4.1 billion) cash payment due this month to the former Anglo Irish Bank Corp (ANGL)., as it continues talks to lower the bank’s overall rescue bill. Noonan has indicated he may ultimately seek to use the euro-area’s bailout fund to refinance the cost of bailing out the lender.

“The ECB would favor that because it would improve their collateral significantly,” Noonan told reporters before a meeting of European finance ministers in Copenhagen today. “But that would be of little use to Ireland unless we got the commitment to ongoing medium term low-cost funding from the ECB.”

Irish consumer lenders relied on 71.3 billion euros of ECB funding in January, according to the country’s central bank. The nation’s financial system came close to collapse in 2008 after a real estate bubble burst, prompting investors to shun Irish banking debt and forcing the state to take control of five of country’s six biggest domestic lenders.

Euro-area finance ministers should commit to an emergency lending capacity of at least $1 trillion to reassure investors in the face of the region’s debt crisis, Noonan said today.

“Anything that gets you $1 trillion looks like a serious firewall,” Noonan said. “The maximum that could be on the table today would be 940 billion euros. That would be a very impressive figure.”

Win

As part of a wider restructuring of the financial system, Noonan also wants to move loss-making tracker loans out of the some banks. Allied Irish Banks Plc, (ALBK) 99.8 percent owned by the government, said today it’s in discussions on such a move.

“The deferral is a positive,” said Stephen Lyons, an analyst with Dublin-based securities firm Davy. “A far greater win would be any announcement of support to remove tracker mortgages from Irish banks’ books, which would be a significant step in returning the banks towards profitability.”

Ireland’s October 2020 bonds, regarded as the benchmark, yielded 6.84 percent yesterday, down from 9.1 percent at the start of December.

To contact the reporter on this story: Joe Brennan in Dublin at jbrennan29@bloomberg.net; Mark Deen in Copenhagen at markdeen@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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