Ireland's Noonan: Bank Bond Plans Advance Burden Sharing Aim
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DUBLIN (Dow Jones)--Irish Finance Minister Michael Noonan said plans by Bank of Ireland Plc and other stricken lenders will achieve his government's aim of pressing "appropriate" burden sharing on bank bond holders amid Ireland's debt crisis.
Bank of Ireland, one of the country's last surviving major lenders, said Tuesday it plans to start talks--driven by the Irish government--to make significant savings from the EUR2.6 billion in debt the bank owes holders of its subordinated bonds.
The government, which already owns 36% of Bank of Ireland, is hoping that this and other similar so-called debt liability offers to bank bond holders in three other broken Irish lenders will help it save at least EUR5 billion of the EUR24 billion additional capital Irish central bank stress test results in March showed the broken lenders will need to return to health.
The stress tests were ordered by the European Union and International Monetary Fund as part of the EUR67.5 billion bailout loans deal Ireland agreed last year when markets refused to lend the country more money amid the escalating costs of saving the Irish banks.
Ireland may end up injecting EUR70 billion into its banks, equivalent to 44% of its annual economic output, making it one of the most expensive bank rescues in recent times.
Like other Irish broken banks, Bank of Ireland has already needed huge injections of government aid after reckless lending during the boom years soured spectacularly.
Noonan said the plans announced separately Tuesday by Bank of Ireland, Irish Life & Permanent--Ireland's largest home loans and pensions provider--and by the small lender Educational Building Society, is "the final market-based step" for the government to make savings from bond holders.
The government took on new powers in April to force, if necessary, big losses on subordinated holders in Allied Irish Banks PLC, Ireland's other major lender.
The new Irish coalition government, led by Prime Minister Enda Kenny, that came to power in March said it was prevented from pushing losses on senior bond holders by the EU and the European Central Bank who fear the risk of contagion.
In its update to the stock market, Bank of Ireland said it expected to offer only 10% of the face value to holders of its so-called Tier 1 subordinated bonds and 20% of the face value to Tier 2 bond holders.
Dolmen Securities Chief Economist Oliver Gilvarry said the Bank of Ireland offer was "significantly lower" than the market was expecting. He forecasts the lender to make savings of no more than EUR2 billion from the EUR2.6 billion it owes holders of its junior debt.
Bank of Ireland also confirmed it continues to work on other "initiatives," including it possibly seeking additional capital through a rights issue or placing of its shares in the coming months. Its plan may also include an offer for bond holders to swap some of their existing debt for equity in the bank.
Irish Life & Permanent said Tuesday it too plans to launch a debt management offer to holders of EUR840 million subordinated bonds, and expects to offer holders 20% of the face value of the bonds. The government is seeking to spin off and sell its profitable Irish Life assurance unit from the group.
The Educational Building Society also said Tuesday it expects to offer similarly sized discounts to holders of its EUR110 million bonds.
--By Eamon Quinn, Dow Jones Newswires, +353 1 676 2189; eamon.quinn@dowjones.com