Ireland's Finance Minister Michael Noonan said yesterday that Anglo Irish Bank Corp. and Irish Nationwide Building Society senior bondholders should share losses instead of the current policy where owners of senior securities are protected.
According to market reports, Ireland was discussing the possibility of this shift in policy with the International Monetary Fund (IMF) and the European Central Bank (ECB) causing the state-owned bank's bonds to trade down by 10 basis points.
"This may be political posturing to help Ireland get a reduced interest rate on its bailout loan, but it's certainly not helping European banks," an analyst at Jefferies International said.
The government has injected a combined €34.7 billion ($49 billion) into the two banks over the past two years and is winding them down over a 10-year period. According to a Bloomberg report, the policy shift could impose losses up to 90% on €2.6 billion ($3.7 billion) of subordinated debt as it offers bondholders an exchange for cash or equity.