Bank of Ireland's offer to swap subordinated bonds may be helped by "the threat of coercive action" in new banking laws to be voted by the Dáil tomorrow, according to Glas Securities.
"Retrospective legislation on bank debt is unprecedented," Glas said in a note today. "Voluntary debt management is a more desirable outcome in terms of market perception, but the threat of coercive action may well increase the participation in the Bank of Ireland tender process on Thursday."
The bank will exchange as much as €1.5 billion of its lower Tier 2 bonds for new, 6.75 per cent state-guaranteed notes in euros and pounds due 2012.
Minister for Finance Brian Lenihan will bring legislation to allow burden-sharing by subordinated bondholders in Irish banks before the Dáil.
A spokesman for the Department of FInance said the measures will be included in the Credit Institutions (Stabilisation) Bill 2010, which is due to be voted on by 10pm that day.
Subordinated creditors rank behind senior bond holders and depositors in a liquidation.
The €85 million deal with the International Monetary Fund (IMF) and European Union explicitly bans the State from defaulting on guarantees given to the overseas finance institutions that loaned €15 billion in senior bonds to Anglo Irish Bank.
The memorandum of understanding detailing the terms states that the Government cannot fall into arrears on either its contracted or guaranteed external debts, meaning the debts of the banks that it has guaranteed.
Shares in Bank of Ireland were down 3.1 per cent to 41 cent on the Dublin market this afternoon.
Additional reporting: Bloomberg
