Ireland wants bank bondholders to share the pain
By Carmel Crimmins
DUBLIN (Reuters) - Ireland's government wants to impose losses on some senior bondholders in Irish lenders to reduce the burden on taxpayers from a prolonged banking crisis, a senior minister said on Sunday.
Dublin wants to impose losses on banks' senior unsecured bonds not covered by a state guarantee, which currently amount to over 16 billion euros, as part of a new deal with the European Union, the European Central Bank (ECB) and the International Monetary Fund (IMF).
"A sustainable and comprehensive solution for Irish banking that involves recapitalization but also involves an element of burden-sharing ... That is certainly the outcome that the government is looking for," Simon Coveney, minister for agriculture, told state broadcaster RTE.
Under an EU-IMF bailout agreed late last year Ireland can impose losses on banks' junior debt, but the ECB is opposed to treating senior bondholders, which are ranked on a par with depositors, in the same fashion for fear of a contagion risk.
Ireland's new government, elected in February, has said the state cannot afford the current EU-IMF bailout deal and European finance ministers will decide on what sort of concessions they can offer Dublin in coming weeks.
They are awaiting the results of fresh stress tests on Ireland's banks, expected to show a capital hole of around 25 billion euros, on March 31 before deciding on any new deal.
Coveney said investors are already pricing in the possibility of a restructuring of senior bank debt given that it is trading at a discount in the secondary market.
Analysts widely expect the government to impose losses on senior bondholders in nationalized lenders Anglo Irish Bank and Irish Nationwide because they have sold their deposits and are being wound down.
Hitting any unsecured unguaranteed senior bonds in Bank of Ireland and Allied Irish Banks (AIB), which amount to over 11 billion euros, would be more controversial.
Rumours that AIB was planning to miss a coupon payment on a bond, denied by the bank, helped send the yield on two-year Irish sovereign paper soaring to euro-era highs as investors feared a sovereign restructuring was in the works.
(Editing by David Holmes)