IFSC-based Depfa to force bailout costs on junior bondholders
Depfa, the IFSC-based bank bailed out by German taxpayers, is seeking to force some of its losses on subordinated bondholders – just as happened at failed banks here
The bailed-out bank is hoping to write off around 70pc of €1.2bn in subordinated debts owed by the bank to bondholders, by buying back the debt at a steep discount.
The discounted buyback is a cost-saving technique that was used extensively here to shave billions off the costs to the State of rescuing Anglo Irish Bank, AIB, Bank of Ireland and other Irish lenders.
Like the Irish banks, Depfa and its parent bank Hypo Real Estate had to be bailed out and nationalised when the banks failed in the face of the global financial crisis.
In Depfa's case, German taxpayers have been on the hook for over €100bn, thanks to the collapse.
The latest deals are an attempt to spread some of the rescue costs back on the lenders.
The Depfa debt buyback is less aggressive than the "coercive" transactions undertaken by the Irish banks.
Those Irish deals were structured so that any investors who refused to sell back their bonds at prices of around 20pc of their face value risked being hit with even bigger losses.
Depfa is offering 29 cent in the euro to its bondholders or 30 cent in the euro if the holders sign up for the deal early.
The softer terms are likely to have been influenced by a recent legal action against Irish Bank Resolution Corporation (IBRC), formerly Anglo Irish Bank. The High Court in England has ruled that its bond deal was overly aggressive, and therefore illegal.
The case is being appealed, but if IBRC loses Irish banks could face massive compensation bills.
Details of the Depfa buyback were posted on the Irish stock exchange this week, where bonds issued by the bank are registered and traded.
It's a reminder that taxpayers here might have been hit with some or even all of the costs associated with Depfa's collapse. The bank was classified as Irish from 2002 until 2007.
Depfa specialised in lending to governments and local authorities.
It had become an "Irish" bank after transferring its headquarters from Germany to the IFSC in 2002.
It was this country's biggest bank until 2008, when it returned to German control after being taken over by Munich-based Hypo Real Estate in a €5bn deal.