If I worked in the treasury department of a bank, I'd be buying back the bank's own bonds. Why lend to risky businesses at around 10% or to the dead property industry at 5-8% when you can effectively earn 6-7% by buying back your own bonds?
ipxl you sorta got itThe banks do not have to immediately pay back bonds, depends on their maturity term.
Yes the "haircut" on the asset sales to NAMA will leave a capital hole which has to be filled. Buying bonds pack at less than their book value is the reverse process, it is the banks repaying their liabilities with a "haircut" and this creates capital.
There are bonds and there are bonds. The Subordinated Bonds are quoted on markets and a price below par reflects a fear that some day, some way they will not be repaid. The banks can therefore simply buy them back at their market price. So whilst there is no direct negotiation between the banks and the sub bondholders you might say that the market has acted as a go between.If the banks apply a haircut on the purchasing back of their bonds does this involve negotiation with the bondholders ?
I know that NAMA had been designed to give minimal exposure to the bondholders and that this is a point of contention with many.
There are bonds and there are bonds. The Subordinated Bonds are quoted on markets and a price below par reflects a fear that some day, some way they will not be repaid. The banks can therefore simply buy them back at their market price. So whilst there is no direct negotiation between the banks and the sub bondholders you might say that the market has acted as a go between.
Now the Senior Bonds are quite a different kettle of fish, and there are far more of them. These are simply long term deposits held by other banks and institutions. They are not, so far as I am aware, traded on markets as they are regarded as the same as deposits and would indeed rank alongside deposits in a winding up.
You are right that there are those who argue that the banks should threaten bankruptcy and negotiate these seniors to switch their bonds into equity. The problem is these seniors know that they are entitled to the same deal as ordinary depositors and I don't see ordinary depositors accepting shares instead of their deposits, do you?
Not sure I fully understand your query. Banks have already bought back some of their bonds in the market at big discounts. That is always available to them. The discounts are there because the market doesn't trust the banks to ultimately deliver on the original terms.
When banks buy back these bonds they simply cancel them and so are relieved of the future requirement to pay coupons and redemption amounts. It's like you being able to buy back some of your mortgage at a discount, because your bank doesn't trust you to stay the original course.
Well,I think the money given to them by the government could be lent to viabe irish companies IMMEADIATELY.AsI said the banks can pay their bonds as they come due.This idea of the banks doing otherwise with the money makes me very uneasy.The banks could tell us that they found a superb investment oppurtunity that returns 10% and was too good to turn down.That kind of thinking is what got them into this big mess.
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