[FT] Allied Irish and a collapsing capital hierarchy

ftalphaville.ft.com/blog/2011/04 … hierarchy/

fixedincomeinvestments.org.u … seismicslo

Haven’t seen this posted here yet, seemingly the Subordinated Liabilities Order issued last week my Minister Noonan indicates the Irish government must “either be unaware of what it’s let out of the dungeon here, or there’s been some kind of error in the order’s drafting.”

(Past history would tell that us the “or” in that quote could be replaced with an “and”.)

The problem seems to be along the lines of mixing up the priority rankings of debt to protect the NPRF’s equity stake in the bank.

A poster makes a point that by doing this

“if the established priority rankings of debt and equity can be unilaterally and retrospectively altered by government diktat at any EU bank, then no EU bank debt is investable. How, for instance, could any institutional investor possibly buy a bank COCO if the terms of that instrument can subsequently be altered at a government’s whim?”

It seems to me from the links to that website that are posted here that the posters use it to spread rumours to aid their trading positions.
It’s foolish to give it oxygen really. You’re helping someone to get their Ferrari.

Ahem, the possibility was raised on the 'Pin ages ago:
(Okay, only a few months ago, but hey that’s an age these days).

Eh, the site is run by journalists from the FT… unless you mean posters on here? In which case I’ll declare my current open positions - get a job, sign on, or shoot those feckin’ deer that keep eating my trees…

As per my point above, the legislation and the current order are fundamentally flawed. You can’t alter the capital structure unilaterally to favour a junior creditor over a more senior one. While you might get away with forcing a debt-for-equity swap on junior bondholders, you can’t haircut them to advantage equity holders.

It’s a shame our last attorney general spent so much time telling us how we couldn’t cut banker’s salary, bonuses or payoffs, but somehow managed to balls up this fundamental tenet of company/contract/insolvency law.

Course you can when when you provide emergency backstop funding instead of casino capital.

Not sure how serious any of the current challenges to this legislation actually are. None of the law firms involved for the bond holders are heavy hitters on the Irish legal scene. The post on FT alphaville could be more damaging than the actual legal action, as it is widely read and potentially more damaging to our already fractured credibility.

I doubt it, it is cranks who read in detail. The notes quoted in the post are more, er, noteworthy.

The legislation was not going to be tested over Anglo or INBS as they were clearly bust and in receipt of absolute bungs of non-returnable cash (the promissory notes). In the case of AIB, as far as I am aware, there has just been equity injections. According to the state, AIB is not bust. If it is not bust and there has been no bailout, then why should subordinate bondholders take any cut at all?

Correct. The emergency backstop funding changed the rules of the game.
Force Majeure. End of story.