Dublin: Ireland is in the final stages of negotiating an international aid package to rescue its financial system before markets open tomorrow after investors on Friday dumped the bonds of its largest banks.
Euro-area finance ministers may seal an agreement with Ireland today, with a teleconference slated to begin at 4pm Brussels time, a European Union official said on condition of anonymity.
The loans may cost as much as 6.7 per cent, compared with a rate of 5.2 per cent paid by Greece, state broadcaster RTE said, without citing anyone.
The need for a pact, which may be worth 85 billion euros (Dh414 billion), is intensifying as capital flows out of the nation's banks. The Irish government two years ago assured senior bondholders they wouldn't lose their money if banks failed. For negotiators, the risk is that breaking the pledge may spark concerns about the quality of other euro-region debt.
"One possible scenario is that the financial package for Ireland could include an element of restructuring affecting senior debt," Fitch Ratings said in a statement. "Fitch has no visibility of this matter but notes that such a restructuring could have wider implications for the euro area."
Allied Irish Banks and Bank of Ireland bonds fell on Friday on concern the government will abandon a pledge to protect senior bondholders and instead force them to share the bailout costs.
EU and International Monetary Fund officials are taking legal advice on how senior bondholders can share the cost of the rescue without triggering lawsuits, the Irish Times said on Friday, without saying where it got the information.
Ireland's crisis is now forcing Portuguese and Spanish politicians to quell speculation that they are next in line for rescue.
The cost of insuring Portuguese, Irish and Spanish government debt against default on Friday rose to records based on closing prices, according to CMA.
"The sovereign debt crisis has gone from third to fifth gear in just a matter of days," said Kathleen Brooks, research director at Gain Capital Group in London.
Sovereign woes
"Whereas the Greek crisis and the start of the Irish crisis were concerned with individual sovereigns and their problems, the current chapter of Europe's sovereign woes has turned into a periphery-wide issue where no one is safe."
Ireland may pay an average 6.7 per cent for the loans, which would last nine years, RTE said.
The cash will come from the European Commission, the IMF and the European Financial Stability Facility, which will charge different rates, RTE said.
The IMF's loans may be the cheapest at 4.5 per cent, and the EFSF would be the most expensive, RTE said. The EFSF will provide the bulk of the overall bailout.
Ireland's debt agency has paid an average of 4.5 per cent on funds raised over the past two years, RTE said.
"If that is true, it is too high," Leo Varadkar, a spokesman for the opposition Fine Gael party, said on RTE. "The government in my view needs to play hardball."
Allied Irish's 750 million euros of 5.625 per cent senior notes due 2014 plunged two cents on the euro to 75 cents, a 2.6 per cent decline, according to composite prices on Bloomberg. Bank of Ireland's 974 million euros of 4.625 per cent senior unsecured notes maturing in 2013 fell three cents on the euro, or 3.4 per cent, to 82 cents.
Outflows
While deposit outflows have "stabilised" in recent weeks, Anglo Irish Bank Chairman Alan Dukes told Bloomberg Television two days ago that the nationalised lender lost about 12 billion euros of deposits this year and that "other banks are having similar problems."
Anglo Irish on Friday had its long-term counterparty credit rating cut to below investment grade by Standard & Poor's, which cited concerns about sovereign support for the bank.
Deposits at Allied Irish and Bank of Ireland have fallen by a combined 22 billion euros since the end of June, according to estimates from Emer Lang, an analyst at Dublin-based securities firm Davy.
Governments elsewhere in Europe pushed back against investor bets they may next be in line for a bailout.
The average yield investors demand to hold 10-year debt from Greece, Ireland, Portugal, Spain and Italy on Friday reached a euro-area record of 7.57 per cent. By contrast, Germany pays 2.73 per cent.
