Aegon’s Phil Milburn expects Irish banks to be able to refinance debt coming up for renewal next month, despite some predicting another testing time for the region.
The manager of the Aegon High Yield Bond fund says the banks have a number of options, as a two-year blanket guarantee for €25bn Irish bank debt expires in September, even though Ireland was downgraded by credit rating agency Standard & Poor's (S&P) last week.
European banks, particularly those that are in weaker eurozone economies such as Ireland or Spain, have struggled to refinance and in May and June were virtually shut out of the market, according to today's FT.
In the article Robert Crossley, interest rate strategist at Citigroup, says the premium paid by Ireland could have a knock-on effect in Europe.
"The immediate potential danger is that the news feeds on itself and we see another spiral [in Europe's peripheral economies]. The widening could easily spread in the current mood.
"Some European banks have been taking advantage of strong demand and low borrowing costs to sell bonds in the US, but bankers said that option was only available to the biggest institutions."
However, a separate FT article says Ireland will not be completely unsupported as the existing guarantees have already been partially replaced by scheme agreed with the European Commission in June which lasts until the end of the calendar year.
Milburn says there are a number of options for the bank, including addressing the market at the senior level. This is a time, he says, when there will be "shedloads of supply" as is always the case in September and he adds the Irish Government has taken the right approach compared to other regions.
"This is not Ireland trying to bail out the banks again. This is Ireland trying to free up credit to get the financial system flowing again. It is in the economic doldrums but it is manageable as they were prudent enough to start with very low debt in the first place.
"There is no pain-free way out so Ireland is dealing with the pain, unlike other countries such as the US which are just delaying the pain."
