Brendan Burgess
Founder
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Of course, that begs the question - what will happen on 30th September 2010 ?
All of the commercial paper, most of the deposits and all of the repos will expire before the guarantee. My guess is that it will be refinanced, but at increasingly shorter durations to coincide with the expiry of the guarantee. (So a six month commercial paper sale that expired in May 2010 will be refinanced as a four month one).Can you tell from the AIB accounts how much of it will have the guarantee expiring?
I don't know that it's the best argument, but it's certainly a good one. To me the best argument is that the banks will be able to fund the deficit as private institutions where they might not be as state ones. But it certainly gives the state the option to put a 'better' guarantee in place -Is this then the best argument for not nationalising the banks? It gives the government the option of not extending the guarantee.
Yes. I think this the only sensible thing to do. What will be interesting is what they do with the deposit guarantee in particular. At the moment, deposits are still flighty, so any dilution could have stability consequences. Not guaranteeing existing, but guarantee new bond issuance is a bit of a no-brainer, really and is what they should have done in the first place (like the Germans did) and guaranteeing for a range of maturities to avoid a refinancing crunch (like the Germans did).Could the government not extend the guarantee selectively?
I believe they're quoted on the ISEQ, but you need to know the code to reference them. They are, I believe, quite thinly traded so there is only the odd reference sale. If they had to be sold in bulk, the price would likely be quite different to that of the reference sales. But I'm not a trader and don't have a Bloomberg terminal to see...Where can you monitor the prices of these bonds?
All bonds trade above or below par depending on the coupon, the time to maturity and sentiment. Par is only a useful concept if you are holding to maturity. Otherwise, price/yield is the thing to look at. So if the face value of a 2% coupon bond is 100 euro, and the bond is sold for 90 euro initially and the duration is ten years, the yield is 3something% ((100-90/10)+2%). There's a formula for working it out, but I can't either find it or get my head fully around it (despite having kind posters here and elsewhere point it out to me! Apologies if I have it wrong again!).If they fall significantly below par, couldn't the government buy them?
Further, if the company can afford to buy back its own distressed debt, then it is not in such dire straits after all, so there is less reason for the debt to be distressed.
In our current circumstances, the almost-blanket guarantee on liabilities agreed on September 30 ...
1)
As of now, from Reuters, AIB have 17b total debt instruments outstanding. Of these teh subordinated notes (4b) are trading at 30-60c on teh euro. The 8b of Senior Debt is trading better but that is mostly coming from the guarantee as they are mostly within the guarantee and are mostly for liquidity purposes as I noted
Could the NTMA have done this instead, given that the taxpayer is sort of guaranteeing those bonds anyway?
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