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Fitch says new government likely to avoid forcing losses on bondholders

RATINGS agency Fitch believes the next government is "likely to want to avoid" forcing losses on unsecured senior bank bondholders who don't have the protection of a government guarantee.

The comments come after prominent stockbrokers -- including Goodbody -- recommending the Government make those "unsecured unguaranteed senior bondholders" share the cost of the banking bailout.

Bondholders in that class are owed about €15bn by the banks and could be asked to accept as little as 50c in the euro for their investment, according to Goodbody's chief economist Dermot O'Leary.

Fine Gael's public statements suggest the party's incoming government would be open to the move if they can secure support from the EU.

But in a note yesterday, Fitch pointed out that Anglo Irish Bank and Irish Nationwide (the two institutions seen as most likely to impose burden-sharing) had relatively small amounts of senior unsecured unguaranteed debt.

That fact, coupled with the incoming government's likely desire to "minimise the risk of a disorderly wind-down" of Anglo and Nationwide leads Fitch to believe the authorities "are likely to want to avoid" forced burden sharing.

Despite that view, Fitch yesterday slashed the ratings of Anglo and Nationwide's senior unsecured unguaranteed debt to junk, citing "political risks".

Fitch also slashed Anglo and Nationwide's short-term and long-term issuer ratings, and put Bank of Ireland, AIB and Irish Life & Permanent on "negative watch".

The ratings agency attributed the downgrades to last week's announcement that a planned recapitalisation of AIB, Bank of Ireland and EBS would now be postponed until after a new government takes power.

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