Bank of Ireland signal at debt swap disappoints-UPDATE 2
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Wednesday June 01, 2011 12:29:13 AM GMT
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IRELAND-BANKS/ (UPDATE 2)
* Bank of Ireland to buy back about 2.6 bln euros of debt
* Irish Life & Permanent to buy back about 840 million euros
* EBS to buy back around 250 million euros in junior debt
* Bank of Ireland may offer investors a debt for equity swap
* Buyback discounts in a range of 80-90 percent
(Adds comment from Finance Minister, analyst, market moves)
By Carmel Crimmins
DUBLIN, May 31 (Reuters) - Bank of Ireland on Tuesday said it would impose large losses on junior bondholders and disappointed investors with a lack of certainty around a more attractive deal for holders willing to take shares in the group instead.
Bank of Ireland's lower tier two paper dropped sharply after the lender said it may offer an equity alternative to its cash buyback rather than laying out concrete plans for such an offer.
"People were playing them for a debt-for-equity swap so with the uncertainty over that some investors are getting out," said Oliver Gilvarry of Dolmen Securities.
"We were expecting that was going to be a key part of the whole deal."
Ireland's largest bank wants to avoid falling into state control after it was ordered to raise 5.2 billion euros in capital, including 1 billion euros in contingent capital, before the end of July to bulletproof it from the fallout from a devastating property crash.
Bank of Ireland said it would shortly launch a buyback for around 2.6 billion euros in subordinated debt, offering holders of Tier 1 securities just 10 percent of the face value of their original investment, and holders of Tier 2 securities 20 percent.
Bank of Ireland's lower tier two paper was trading at 40 cents in the euro after the announcement, still higher than the 80 percent discount implied but down from around 55 cents on Monday due to the lack of clarity on a more attractive debt-for-equity swap.
Separately, smaller rivals Irish Life & Permanent and EBS Building Society also said they would impose losses equivalent to around 80-90 percent of the face value of some 1.1 billion euros in junior bonds.
The banks said if investors did not accept the offers, the Irish government would take whatever steps necessary to "maximise burden sharing".
The discounts are on a par with those levied against bondholders in Allied Irish Banks and Finance Minister Michael Noonan said such burden-sharing was the minimum acceptable to the government.
"These financial institutions are remaining solvent due to the ongoing overwhelming financial support of the state, without this support subordinated bondholders' entire investment would have been irrecoverable," Noonan said in a statement.
HARDLINE ON JUNIORS
Criticised for not imposing losses on banks' senior bondholders due to opposition from the European Central Bank (ECB), Ireland's government is taking a hard line on junior bondholders, forcing them to share some of the 70 billion euros bill for bailing out the sector.
Dublin is hoping such debt buybacks will generate 5 billion euros towards propping up the sector, reducing the amount it needs to tap from an 85 billion euros EU-IMF bailout package and possibly freeing up funds for the government if Dublin's return to the debt markets is delayed.
But two investors have challenged the government's plans to impose losses on some 2.6 billion euros in subordinated bonds in Allied Irish Banks and the High Court will start hearing the case on Thursday.
If the bondholders win their case it could complicate Dublin's attempts to claw back money from investors.
The government has nationalised almost the entire Irish banking sector to save it from collapsing under the weight of loan losses, deposit outflows and a freeze on accessing debt markets.
Bank of Ireland, in which the government holds a 36 percent stake, is the only lender to avoid, so far, majority state control.
Data out on Tuesday showed that the rate of decline in deposits in Ireland's banking system slowed to 9.1 percent year-on-year in April from a 10 percent drop on the previous month.
(Editing by Will Waterman and David Cowell)
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