Bank of Ireland needed more funds for recapitalisation. If the bank had failed in this task the government would have been forced to pump in more money. As a quid pro quo it would have taken a bigger stake in the bank and imposed haircuts on junior bondholders. Michael Noonan had flagged this on November 23: In fact BOI managed to raise the money by buying back the outstanding junior bonds at a discount so the government did not have to put more money into the bank. So why would Noonan burn the bondholders IN THIS PARTICULAR CASE. Yet he is being unfairly lambasted in relation to this issue. The Irish government has already raised about 15 billion euros by imposing losses on subordinated bank bondholders
I hold no brief for bondholders. It sticks in my throat but remember that the ECB has us over the barrel of a gun thanks to the bank guarantee. Whether it should have been given by the late Brian Lenihan is neither here nor there now. The fact of the matter is that it was given. I am well aware of the differences between senior and junior bondholders. The ECB is keeping our banks afloat with 130 billion euro. It has made clear what the consequences are for us if we fail to pay senior bondholders.
Thanks to the bank guarantee money owed to senior bondholders is now part of our sovereign debt. Default on payments to senior bondholders is thus seen as default on the national debt and would thus make it impossible for us to return to the bondmarkets for many years.
Incidentally it appears that UK pensioners owned some of these subordinated bonds.. As far as I am aware they are from Yorkshire. I am glad that these people were not wiped out as they would have been left in destitution. As an Irishman I rest easier that they were not wiped out.