AIB and BoI investors more likely to fight 'forced' losses
Published 30/11/2010 | 05:00
FORCING losses on investors in AIB and Bank of Ireland will be tougher than at Anglo Irish Bank, sources warned last night.
The warning came after Finance Minister Brian Lenihan said the Government needed to impose "big haircuts" on the banks' subordinated bondholders
Subordinated bonds are high- risk loans made to banks. Bondholders know they can suffer losses if the bank fails.
State-owned Anglo Irish Bank is in the middle of a process to reduce the amount it owes to subordinated bondholders by swapping its subordinated bonds for new debt worth 20 cent in the euro.
Credit analyst Elisabeth Afseth of Evolution Securities in London said news that Irish banks were to get fresh injections of capital was regarded as positive for senior and subordinated bondholders.
She said that the law meant the new money was more at risk than any debt owed by banks. "If they impose losses on these bonds it would involve rewriting the rules," she said.
One bond investor agreed: "If bondholders take a haircut it implies that shareholders in the bank have already been wiped."
An Irish lawyer said repeating an Anglo Irish-style deal for AIB or Bank of Ireland would be tricky. These bondholders would be less willing to walk away without a legal fight, he said.
The source said that if shareholders remained in place at the banks, lenders had a strong claim to seeing their debt honoured. Lenders could still agree to an exchange, but at a higher price or take a stake in the bank.
He said Anglo Irish Bank was such an obvious basket case that those considerations did not arise.