AIB presses ahead with bail-in rules overhaul

Irish bank will set up holding company to meet new European rules on future bailouts

AIB cost €20.8 billion to rescue during the financial crisis. Photograph: Crispin Rodwell/Bloomberg

AIB cost €20.8 billion to rescue during the financial crisis. Photograph: Crispin Rodwell/Bloomberg

 

AIB, which cost €20.8 billion to rescue during the financial crisis, moved on Monday to press ahead with a restructuring aimed at meeting new European rules on minimising future taxpayer bailouts.

The lender and its main rival, Bank of Ireland, said in February that they would set up holding companies at the top of their corporate structures, designed to give taxpayers and depositors maximum protection in the event of another crisis.

While Bank of Ireland executed its plan over the summer, AIB’s was postponed as the Government’s sale of a 28.8 per cent stake in the bank, raising €3.4 billion, took precedence.

However, AIB moved on Monday to file an application with the High Court to commence a process for shareholder and court approval for the setting-up of a new holding company, called AIB Group.

This entity would issue senior and junior debt that could be “bailed in” if needed, before State support would be called upon. Deposits, however, would be held in the existing operating banks, where they would enjoy greater protection.

Irish banks inflicted €15 billion losses on junior bondholders as taxpayers picked up a gross €64 billion rescue tab between 2009 and 2011. However, senior bondholders were protected because of opposition from the European Central Bank and the fact there was no legal framework to “burn” them without also hitting depositors.

AIB said that, subject to the High Court approving its application, the bank would then move to convene an extraordinary shareholder meeting and the publication of a circular and prospectus for the holding company.

Bank of Ireland raised €750 million last month through the sale of the first batch of junior debt from its new holding company.