Brian Cowen: working on deal

SENIOR bondholders will not be compelled to pay some of the cost of rescuing Ireland's banks under the EU/IMF bailout, with the European Central Bank (ECB) effectively vetoing any such move.

The possibility of bank bond investors taking some of the burden in the restructuring – possibly by converting bank debt into equity shares – was raised, and the IMF was open to the option. However, it is understood the ECB was implacably opposed to such a move. It feared it would have a contagion impact on banks in the rest of the eurozone. It is believed there were also concerns as to whether the move was legally possible.

The €85bn bailout deal is likely to be finalised today. A teleconference of EU finance ministers has been provisionally scheduled for this afternoon and there is some speculation that a full meeting of ministers might even be organised at the eleventh hour. But it will be this evening before the deal is announced.

The €85bn loan will be divided between fiscal support for the state and for the banks. A number of issues remained to be sorted out this weekend including the reorganisation of the banks. It is unlikely that all of the money will be put into the banks straight away, with a fund likely to be put in place for the banks to draw down money as they require it, as advocated by Central Bank governor Patrick Honohan.

But the big sticking point is likely to be the interest rate to be applied on the emergency loans. Informed sources played down reports that the interest rate for any nine-year EU/IMF loan would be as high as 6.7%.

But they pointed out that comparisons with the 5.2% rate paid by Greece were misplaced because that was for three-year loans, for which a lower rate would apply. The average interest rate could be closer to 6%. The money will come from a number of different funds, controlled by the EU and IMF. The interest rate charged by the IMF is understood to be lower – less than 5%.

Honohan, taoiseach Brian Cowen, fin- ance minister Brian Lenihan and NTMA boss John Corrigan have been in Government Buildings working on the deal.