merrion street

The Minister for Finance, Mr. Michael Noonan T.D., today welcomed the High Court’s decision to issue a Subordinated Liability Order (SLO) in relation to Allied Irish Bank (AIB). The SLO, which has been issued under the Credit Institutions (Stabilisation) Act 2010, will amend certain subordinated debt coupon terms and maturity dates and permit the purchase by AIB of debt instruments.  The Minister said:

The Government’s announcement of 31st March set out that the Government will take all the steps it can to reduce the high level of capital required by the financial institutions from the taxpayer.  Today’s action is intended to ensure that AIB’s subordinated debt holders share the burden of the capital position of AIB and reduce the level of capital sought from the taxpayer.

Following the SLO, AIB intends to launch a liability management exercise (LME) in the coming weeks in which AIB will offer to buy back its outstanding subordinated liabilities.  This exercise will result in subordinated bondholders making an appropriate contribution to the cost to the State of providing additional capital to AIB while providing them with an additional opportunity to voluntarily exit their investment in AIB in a way that will generate material capital for AIB.   If this exercise is not successful, the Government intends to take whatever other action is necessary to ensure appropriate burden sharing by remaining subordinated bondholders.

Work is also underway to ensure appropriate burden sharing by subordinated bondholders in Bank of Ireland and IL&P and there will be a further statement on this in the coming weeks.   As previously noted, in light of the position of the ECB, the Government’s policy is not to pursue burden sharing with the senior bond holders in AIB, Bank of Ireland, EBS or IL&P.

As previously announced, it is intended to combine the operation of AIB and EBS to build a second pillar bank from the strengths of both institutions.   Both institutions are currently working to effect this combination.  The Minister concluded by stating:

The Government’s restructuring of the banks into the twin pillar system has received a positive international response.  The Government is building on this response and is working to further reduce the cost to the taxpayer.  The banking system that is being created will be focussed on supporting economic growth and jobs.