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Burning bank bondholders offers a chance of survival

IT'S not exactly a case of locking the stable door after the horse has bolted. These are the subordinated bondholders whose loans will not be repaid in full by Bank of Ireland and Irish Life & Permanent. Indeed, they will get at most just 20pc of their money back. They are called "subordinated" because, in a general wind-down, they would be last in the queue of creditors and probably get nothing. So they are not in a position to bargain.

There may still be arguments, and threats of legal action. But similar losses have already been imposed on lenders to AIB, Anglo and Nationwide -- the sign on whose main branch came down last night; symbolising what may well be the most scandalous episode in this whole sorry saga.

Bank of Ireland is different. Not only is it the least damaged of our banks, but its 230-year history makes a default on its loans a bitter pill for the bank, as well as bondholders and shareholders.

The shareholders will not have expected the second part of the bank's proposal -- that bondholders could opt to take new Bank of Ireland shares instead of 20c in the euro cash on their loans. They could then hope that the shares might one day be worth more than that. Not paying the bondholders will save the bank some €2bn. If the bank can raise something similar from other investors, it could remain a stock market company, with the government as a minority shareholder.

It cuts the other way for existing shareholders. The creation of new shares means their holdings will be worth less. For many, these shares were life savings. Some will have tried to reduce their losses by investing fresh capital at 55c a share. Most of that has been lost too. Some of it might still be recovered. One thing that bank, bondholders, shareholders and government have in common is the hope that Bank of Ireland can stay out of state ownership and perhaps recoup some of their losses in the end.