DUBLIN (Reuters) - Bondholders in Allied Irish Banks and Bank of Ireland are trying to cap any losses they could face from a government plan to make them shoulder some of the cost of overhauling the country’s banks.
Ireland has ruled out forcing holders of bank senior debt to take a hit as part of an 85 billion euro ($113.5 billion) IMF/EU bailout but the government signaled last month that the sort of restructuring of subordinated bank debt already being implemented by nationalized lender Anglo Irish Bank could be replicated across the sector.
A group of senior and subordinate bondholders in AIB and Bank of Ireland held a conference call last Friday to discuss their options, two sources familiar with the talks told Reuters on Tuesday.
“The government of Ireland came (up) with a really coercive offer (on Anglo Irish). They (investors) got together (because) they didn’t want to replicate Anglo Irish,” said one of the sources involved in the talks and who declined to be named.
“They want to approach authorities and financial management with a proposal that is market-friendly and collaborative as opposed to Anglo Irish which was crazy coercive,” he said.
The source could not say how much debt the investors held but said they were major institutional players, including hedge funds and insurance companies, in London and New York.
Anglo Irish, nationalized last year due to a property crash and several loan and deposit scandals, has offered to exchange some 1.6 billion euros of subordinated debt at a discount of 20 cents per euro.
The bank, the poster child for Ireland’s financial crisis, has said it would force bondholders that don’t take up the offer to accept just 1 cent per 1,000 euros to redeem their floating notes due 2014, 2016 and 2017.
London’s Daily Telegraph had reported on Monday that Allied Irish’s bondholders were preparing to sue the Irish government over losses they expect to be forced to take, allegations both sources denied to Reuters.
“(The story) was fundamentally misleading. We won’t be crazy by suing first and then talking later,” said the first source, adding that the parties were trying to find “a way between the two extremes” — meaning between the government’s measure with Anglo Irish Bank and seeking lawsuits.
Ireland’s current coalition government is likely to be replaced by the center-right Fine Gael party and center-left Labour party in an election early next year.
Fine Gael wants to force senior bondholders in Anglo Irish to take a hit on their investments once the lender is wound down and wants junior bondholders at AIB to take deep discounts before selling the bank to a large, foreign bank.
Fine Gael wants Bank of Ireland to renegotiate its liabilities with bondholders on a voluntary basis.
A second source who was a representative of an institutional group present on Friday’s conference call said the discussion was focused on “how we can sit down with the government and look at ways of recapitalizing these banks, come up with a viable plan to keep capital markets open to institutions and for credit to remain flowing to the Irish economy.”
He said a plan could be presented to the government and bank chiefs before Christmas, and said the plan could serve as a blueprint for other troubled financial institutions in Europe.
While recognizing that extraordinary measures were needed to deal with Anglo Irish Bank, the source said a distinction needed to be made since “Bank of Ireland looks like it should be fine, even Allied Irish should have a future.”
“The same investors who are invested in the senior funding and subordinated debt, they are the ones who provide funding to these banks. So the scorched earth policy won’t get anyone anywhere.”
Editing by Carmel Crimmins and Hans Peters