September 22, 2010 / 5:00 PM / 9 years ago

UPDATE 1-Irish finmin says no chance banks, govt will default

* No promises made to subordinated bondholders

* Ireland’s Q2 performance should be “reasonable”

* Lenihan confident lenders can refinance funding this month

(Adds more quotes, detail)

DUBLIN, Sept 22 (Reuters) - It is unthinkable that Ireland or its banks would default on senior debt, Finance Minister Brian Lenihan said on Wednesday.

Opposition politicians and some media commentators have called on Lenihan to force bondholders in Anglo Irish Bank [ANGIB.UL] to take some of the hit for the nationalised lender’s massive losses, which are a major burden on the exchequer.

“It’s unthinkable that Ireland would default on senior debt or that Ireland’s banks would default on senior debt,” Lenihan told Reuters in parliament.

“Ireland is not prepared to be some kind of social experiment for bank default.”

He declined to comment on whether holders of riskier subordinated debt issued by Anglo Irish should be shielded from losses but in a parliamentary committee a senior official signalled a renegotiation of some of the subordinated paper was possible.

“We didn’t give any assurances in relation to subordinated bondholders in Anglo Irish,” Oliver Whelan, director of funding at Ireland’s National Asset Management Agency (NAMA), said.

Anglo Irish has some 2.4 billion euros in subordinated debt and it trades at a significant discount in the secondary market reflecting investors views that it might be restructured.

The government is withdrawing a guarantee for dated subordinated bank debt at the end of this month.

Dublin has, however, extended a guarantee for short-term bank liabilities, including corporate and interbank deposits, until the end of the year to give banks some breathing space while they refinance over 25 billion euros of funding this month.

Lenihan said he was confident lenders would be able to refinance the funding.

Uncertainty over the cost of propping up Anglo Irish has triggered concerns Ireland is on the tip of a debt crisis that could drag down other peripheral euro zone economies.

Ireland’s regulator will unveil the final cost of dealing with Anglo Irish in the coming weeks and Lenihan refused to be drawn on what that bill may be in a stormy grilling by opposition politicians.

So far, Ireland has pledged nearly 23 billion euros in capital for Anglo.

Speaking to Reuters, Lenihan said he expected second quarter economic output figures due out on Thursday would show “reasonable” growth.

He added that he did not have advance knowledge of the GDP and GNP data for the second quarter, which are due on Thursday.

Ireland officially emerged from recession in the first quarter of this year as gross domestic product grew versus the last three months of 2009, but gross national product, a better reflection of the domestic economy, shrank further.

For the second quarter, economists polled by Reuters expected a much smaller GDP rise than in the first quarter and longer-term growth to underperform government projections. [ID:nLDE67U1FV]

Reporting by Carmel Crimmins; Editing by Ruth Pitchford

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