Investors in AIB hold talks over suing State for losses
Bondholders in Allied Irish Bank are preparing to sue the State over losses they expect to be forced to take, in a move that may put at risk attempts by the Government to raise fresh funds next year.
The investors, who include some of the world's largest fixed-income pension and insurance funds, held talks on Friday about taking the Government to court if it forces a second round of "haircuts" on the value of subordinated debt issued by AIB.
Anglo Irish Bank and Irish Nationwide have already been the subject of legal action from subordinated debt investors, but so far without success.
What makes the latest bondholder group's action particularly significant is that it is dominated by "long-only" investors and not so-called "speculators" like hedge funds.
Investors' anger may prompt fears of a "buyers' strike" when Ireland, and other indebted euro-area countries, come to the market next year to refinance hundreds of billions of euros of maturing sovereign debt.
"These are the pension funds, insurers and main fixed-income funds that are the backbone of the bond market," said one source. "Many of these funds are not going to want to touch Irish paper for a long time. I hope governments realise they are angering precisely the people they are going to need to convince to buy new bonds."
Law firm Bingham McCutchen is understood to be organising the group and hosted a conference call on Friday for AIB investors that wish to take legal action. Bingham also advised Irish Nationwide subordinated bondholders.
Meanwhile, it emerged yesterday that officials at the Department of Finance spent almost €8,500 on "stress management". The department also blew €3,200 on a "post-Budget function" at Doheny & Nesbitts pub in Dublin in December 2007 to celebrate Brian Cowen's final Budget, unveiled as the economy was in freefall.