Saturday 24 March 2018

BoI junior bondholders may face wipeout


Laura Noonan

BONDHOLDERS who snubbed Bank of Ireland's discounted debt buyback earlier this year face losing their entire investment under fresh measures being considered by Finance Minister Michael Noonan.

The Department of Finance yesterday announced that the minister was mulling over a forced buy back of 'subordinate' bonds with a redemption value of close to €400m to help the bank reach its capital targets.

BoI offered to buy back the bonds at voluntary discounts of between 20 and 40pc over the summer. The forced buyback could feature discounts of "up to 100pc", the department said.

The department also stressed that the minister had "not yet made a decision on the matter" and that the advice of the Central Bank would be sought.

Bondholders have been given until 5.30pm next Wednesday to make representations to the department on the terms of any offer.

"In about 10 days or so, if we go for it we go for it," Mr Noonan said last night.

"We need to get this done by the end of the year, that's if we do it."

The end-of-the-year deadline stems from Bank of Ireland's need to boost its capital by €350m to meet targets imposed by March's stress tests.

Market sources said yesterday's news was "not a surprise" since crisis banking legislation clearly gave the minister the power to take such actions, albeit with High Court approval.

While the international authorities have prevented Ireland from forcing losses on 'senior' bondholders, sources yesterday confirmed that the EC/IMF/ECB supported efforts to impose losses on subordinate debt holders.

If a 100pc discount were applied to all the bonds listed in yesterday's dispatch from the department, the bank would get a capital lift of about €400m. This appears extremely unlikely. The department declined to be drawn on whether a discounted buyback could involve a cash settlement, the exchange of the debt for BoI shares or the creation of new lower-value bonds.

The bondholders involved are likely to be largely risk-taking investors who bought in when the bonds were already trading at a significant discount to the redemption price.

Thousands of UK pensioners, who took a legal case against the terms of a previous BoI offer, may also still have exposure to the debt.

Glasgow pensioner Albert Kempster, who spoke about his plight when the last offer was made, yesterday declined to talk about the latest developments. "I can't talk about Bank of Ireland any more," he said.

The pensioners had said they were disadvantaged because the bank's original offer gave investors with larger blocks of shares the option of getting 40pc of their redemption value in BoI shares or 20pc in cash.


Those with small holdings, like the pensioners, were not allowed the equity offer. BoI abandoned the offer for the category of debt held by the pensioners, but later mounted a new cash offer at a discount of 60pc.

Only about a third of investors took up the offer.

BoI announced its own capital initiative earlier in the week, in the form of a discounted buyback of €1bn worth of mortgage bonds that had been sold to investors.

Market sources believe that offer could yield BoI close to €200m, but the outcome is highly uncertain since a wide range of different mortgage bonds can be tendered at vastly disparate discounts.

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