THE MINISTER for Finance has abandoned plans to inflict further losses on subordinated bondholders at Bank of Ireland and has avoided threatened legal actions after the bank raised the remaining €350 million of required capital by buying back mortgage-backed bonds.
The Department of Finance said Michael Noonan was no longer considering using powers under the emergency banking legislation to impose losses of up to €350 million on the remaining subordinated bondholders after the bank completed the €4.2 billion recapitalisation ordered by the Central Bank.
Mr Noonan said last week he was mulling a court application for a subordinated liabilities order to raise the final €350 million, but said yesterday he was no longer considering this “for these purposes at this time”.
A lawyer for five hedge funds holding about €300 million of the subordinated debt, which had threatened legal action if the Minister proceeded with the order, welcomed Mr Noonan’s decision.
“The outcome is consistent with our view that Bank of Ireland, following a range of successful market-based, capital-raising initiatives, is adequately capitalised,” said Stephen Phillips, a partner with London law firm White and Case, who is acting for the bondholders, including US fund Appaloosa Management.
Another group of bondholders, about 2,000 UK pensioners who held bonds sold by Bristol West Building Society, which was bought by the bank in 1997, had also threatened legal action over the move.
The bank said yesterday it raised €350 million buying back €1.1 billion of mortgage-backed securities for between 33 per cent and 92 per cent of face value, completing the targeted recapitalisation before the end-of-year deadline set by the Central Bank following the stress tests of last March.
Bank of Ireland had tendered an offer to buy back debt in mortgage-backed securities within its Kildare Securities and Brunel Residential Mortgage Securitisation bond programmes.
Shares in Bank of Ireland rose 8.5 per cent to 8.9 cents after it completed its recapitalisation.
Analysts suggested that a less coercive deal through negotiations with subordinated bondholders may be sought to generate further capital. The bank has generated €5.2 billion since March 2009 by seeking and imposing discounted buy-backs and share-swaps with subordinated bondholders.
The lender avoided State control after the Government sold 35 per cent of the bank in July to North American investors for €1.1 billion. The State injected €4.2 billion into the lender and holds a 15 per cent shareholding.
