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Dilemma for bank bondholders

THERE is a "clear and present risk" that the 55pc of bondholders who didn't take up Bank of Ireland's latest debt exchange will face "further restructuring-like action", ratings agency Standard & Poor's warned yesterday.

The comments came as local fixed income specialist Glas Securities suggested AIB could raise as much as €350m from a new "dynamic" debt exchange.

With challenging capital targets looming at the end of February, both AIB and Bank of Ireland (BoI) are battling to buy back swathes of their weaker debt instruments at a discount.

Any debt bought back at a discount will generate a capital gain for the banks, which will push them nearer to the Central Bank's targets. BoI has already generated €700m by exchanging risky debt instruments with a face value of €1.4bn for 'safer' debt instruments with a face value of about €700m.

Standard & Poor's yesterday pointed out that BoI "will need to raise further equity capital" to reach its €2.2bn target by the end of February.

Bondholders in AIB, meanwhile, have been given until Friday to exchange risky debt instruments for 30pc of their face value in cash. The offer is open to €3.9bn worth of debt.

Irish Independent