Monday 23 October 2017

Italians are victims of Irish 'burning' of bank bondholders

bond markets

Emmet Oliver and Colm Kelpie

Italian savers have ended up the unlikely victims of decisions by Irish banks to force losses on junior bondholders in an attempt to limit the cost of bank recapitalisations for Irish taxpayers.

While the decision to 'burn' subordinated bondholders has mainly impacted on hedge funds, insurance companies and smaller asset managers, it has now emerged that some Italian savers invested in Bank of Ireland subordinated bonds, which have been severely written down over recent months.

Hundreds of Italian savers have seen their investments in the bonds virtually wiped out, with many of them unaware the Irish banks were doing what are known as liability management exercises -- effectively writing down the value of the bonds dramatically.

The Italian newspaper 'Il Sole 24 Ore' has been reporting on the plight of the savers saying some of them only received one cent for every €1,000 they invested in the subordinated bonds.

The paper claimed that Italian banks/brokers marketed the bonds to the Italian savers, but failed to inform them of Bank of Ireland's offer earlier this year.

Some wealthy families are believed to be involved. The Italian press has also talked about AIB burning subordinated bondholders and impacting on Italians, although this could not be confirmed.

The Italian investors appear to be unaware the bonds were not marketed specifically at small-time savers, but mainly at major asset managers, pension funds and insurers who are, in the main, the purchasers of bank debt.

In June, Bank of Ireland offered to buy back debt from subordinated bondholders for between 10pc or 20pc of its original value in return for cash, or double this level if they accepted shares instead.

The offer was part of the bank's efforts to raise €5.2bn to meet the Central Bank's cash requirements.

However, subordinated bondholders were effectively wiped out if they did not accept the cash or shares as they were paid just one cent for every €1,000 of debt they held.

It appears from the Italian accounts of what happened, that some holders of the debt were not aware of the severe nature of the deal on offer.

However, the bank did widely disperse news of its offer at the time.

Irish Independent

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