AIB offers to buy back €4bn in debt

[broken link removed]

Back up the bus here, as George Hooke might say.

I don't want rants, I just want someone to tell me why this €3.9bn has not been wiped out.

We can discuss the rights of Depositors and Senior Bond Holders another time, why are we giving anything to subordinate bondholders?

I can try DerKaiser but you probably won't like it! As far as I am aware, these are Lower Tier II securities. These securities are only slightly subordinated to senior debt. They typically don't usually have loss absorption features written into the docs. Therefore non-payment of interest or principal write down is an event of default. That is why the offer is voluntary. A 70% haircut on these securities is seen as quiet penal but I accept that there is a valid argument for 100% haircuts considering the state we are in.

I should add that they are currently looking at changing this after 2013. (Not much good now I know!)

Please guys can you translate for us mere mortals

Sunny said:

I can try DerKaiser but you probably won't like it! As far as I am aware, these are Lower Tier II securities. These securities are only slightly subordinated to senior debt. They typically don't usually have loss absorption features written into the docs. Therefore non-payment of interest or principal write down is an event of default. That is why the offer is voluntary. A 70% haircut on these securities is seen as quiet penal but I accept that there is a valid argument for 100% haircuts considering the state we are in.

I should add that they are currently looking at changing this after 2013. (Not much good now I know!)

Click to expand...

I see.

My only view on the bailout is that it would be a disaster for depositors to take any hit (the flight of deposits already witnessed would look like a teddy bear's picnic!) and to the best of my knowledge you simply can't then hit senior bondholders as they are on a par with the depositors.

I thought it would be an absolute no brainer that state support could be constructed in such a way that anyone ranking lower than depositors/senior bondholders would lose everything?

The "house of cards" analogy springs to mind.

What little in the way of revelations we've seen so far suggests that

- the interrelatedness of the world financial systems exposd our banks to toxic debt.
- the owners, depositors and bondholders in Irish banks may all be the same people.

Ergo to "hit" one section, if they were on the ropes overall, might push the others over the brink regardless.
I think this was the conundrum facing Brian & Brian and they failed to find a clever way to address this.

Its not exactly Economics and Banking 101.
Simply levelling accusations at FF won't make it better.
Nor will a change in government - remember the ICI/AIB scandal?
That matter was "resolved" by a FG-led coalition - AIB's health = the national interest.

["resolved" = AIB was bailed out by the State]

ONQ.