Bloomberg News

Ireland May Wipe Out Some Bank of Ireland Junior Debt Holders

November 23, 2011

Nov. 23 (Bloomberg) -- Ireland’s government may seek to wipe out some junior debt in Bank of Ireland Plc to complete the recapitalization of the country’s biggest lender.

Irish Finance Minister Michael Noonan said in a statement today he is considering obtaining a court order under emergency banking laws to alter the terms of some debt. The order would allow the debt to be written down by as much as 100 percent and raise as much as 350 million euros ($471 million), he said.

“With recent good news on de-leveraging, which incurred lower than forecast haircuts, it was likely it would make up” the needed capital elsewhere, said Colm Ryan, co- head of fixed income at Goodbody Stockbrokers in Dublin. “As such, the order is a surprise to us, notwithstanding the political ramifications of going after the bondholders.”

Ireland is imposing losses on junior bank debt holders, to cut the cost of rescuing the financial system, which came close to collapse after a real estate bubble burst. The state has injected about 62 billion euros into the nation’s banks, including a net 3.9 billion euros into Bank of Ireland.

Noonan, who said no decision has been made, invited written submissions from interested parties for consideration by him in relation to the possible order. Some 15 billion euros has been raised by “burning subordinated bondholders” within the last three year, Noonan said in parliament on Nov. 2.

The government has sold a 34.9 percent stake in the bank to five investors, including Toronto-based Fairfax Financial Holdings Ltd. and WL Ross & Co., the New York-based investment firm, and now controls 15 percent of the lender.

On Nov.21, the bank offered to buy back as much as 1 billion euros in mortgage-backed securities, to raise capital. That offer ends on Dec. 1, with settlement expected on Dec. 13.

“The government seems to be lining up a Plan B for Bank of Ireland to raise the additional capital it needs,” said Fergal O’Leary, a director at Dublin-based fixed-income firm Glas Securities. “The announcement today makes it clear that the government is weighing up the cost and benefit of an order on the remaining subordinated bonds.”

--With assistance from Joe Brennan in Dublin. Editors: Dara Doyle, Steve Bailey

To contact the reporters on this story: Finbarr Flynn in Dublin at fflynn3@bloomberg.net;

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net


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