MINISTER FOR Finance Michael Noonan has said he is considering imposing losses of up to 100 per cent on the remaining subordinated bondholders at Bank of Ireland to raise the final €350 million required for the bank by the end of this year.
The bank needs a further €350 million to meet the full capital target of €4.2 billion set by the Central Bank following the stress tests of the banks in March.
Mr Noonan said he is considering using the powers under emergency banking legislation to inflict losses of up to 100 per cent on junior bondholders using a Subordinated Liabilities Order (SLO).
The Minister said he had not made a final decision on the order and was calling for written submissions from interested parties by November 30th. He will proceed without further notice if he decides to proceed with the order.
The legislation was changed to give subordinated bondholders notice to respond to a possible court order following a case taken by bondholders in AIB, which is 99.8 per cent State-owned.
“Under the Act, I have to give notice to interested parties; interested parties give their views to me and it’s only at that stage then that I may decide to go ahead with the SLO or not,” Mr Noonan said.
Among the bonds affected are £46 million (€53 million) of debt sold to pensioners by Bristol and West, the building society taken over by Bank of Ireland in 1997.
Asked whether shareholders should take losses ahead of junior bondholders, US investor Wilbur Ross, a recent shareholder in the bank, said the bank disclosed in its rights offering that it had been mandated to raise a further €350 million by the end of the year.
Legislation had been passed “providing for such treatment of sub debt on or before December 31st”, he told The Irish Times.
Mr Ross and a group of Canadian-led private investors injected €1.1 billion into the bank for a 35 per cent stake in a deal negotiated by Government officials in July.
The State has injected €4.2 billion for a 15 per cent stake.
“Given that the State is a minority shareholder, it is interesting that they are throwing this out as a possibility,” said Colm Ryan, co-head of fixed income at Goodbody Stockbrokers.
He thought it “surprising” that the Government may seek the remaining capital from junior bondholders given the better-than-expected gains on deleveraging.
Central Bank deputy governor Matthew Elderfield said that he may slow the deleveraging of €73 billion of excess bank assets by the end of 2013 to avoid firesales.
“We have put a lot of capital into the banks so they can fund that deleveraging but there is a limit to that so we will be prepared to moderate that pace to make sure that the prices are fair ones for the Irish taxpayer,” he told CNBC television in an interview.
Mr Elderfield said the deleveraging was “probably easier in the first year” but would be “more of a challenge” for the next two years.
“It is a matter of getting the balance right – pressing forward with the asset sales but not to get to firesale levels,” said Mr Elderfield.
