Investors in Irish bank bonds could be forced to share in the bailout pain

INVESTORS in some of the riskiest kinds of Irish bank debt could face big losses as part of the bailout deal being thrashed out between the Irish government, the EU and the International Monetary Fund (IMF).

Already, some Irish banks, many of which have been semi-nationalised, are attempting to restructure their debt. Anglo Irish Bank Corp yesterday announced that bondholders of €1.58bn’s worth of its debt – bonds due to mature in 2014, 2016 and 2017 – had agreed to swap their notes for one-year government-backed securities paying 3.75 per cent over the euro interbank offered rate.

The question of whether bondholders will have to take haircuts – that is, write-downs on the value of their debt – on their Irish bank securities will be decided over the coming weeks as the Irish government negotiates the terms of the nation’s bailout.

However, some think haircuts are unlikely. In a note to investors, analysts at Deutsche Bank wrote: “There is only around €20bn of senior unsecured, non-government guarantee bank paper. Even a 50 per cent haircut would only save €10bn.”