AIB hires banks for ‘bail-inable’ bonds under new rules

AIB has hired banks to help it sell the first issuance of bonds by a new holding company, created to meet new European rules on minimising future government bailouts of ailing lenders.

The bank has mandated BNP Paribas, Goldman Sachs International, JP Morgan, Morgan Stanley and UBS to arrange a series of meetings on Monday and Tuesday with potential investors in the senior unsecured bonds. The bonds will be due for repayment in five years’ time.

AIB and Bank of Ireland set up holding companies last year following consultation with the euro zone’s Single Resolution Board, which is responsible for overhauling or even winding down troubled banks in the event of a future crisis.

Debt issued in future by these holding companies could be “bailed in” if needed, before State support would be drawn upon. Deposits, however, would remain in the banks’ operating companies, where they would enjoy greater protection.

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AIB confirmed in an updated debt prospectus for its holding company, submitted in recent weeks to the Central Bank, that it expects to issue between €3 billion and €5 billion of “bail-inable” debt through its holding company to meet regulatory requirements.

“The cost of such funding could be higher than that which the group might otherwise have incurred,” the bank warned in the document, as such debt carries higher risks for investors than liabilities of the operating bank.

Irish banks imposed €15 billion of losses on junior bondholders as taxpayers picked up a gross €64 billion rescue tab for the sector between 2009 and 2011.

However, senior bondholders were protected because of opposition from the European Central Bank and the fact that Ireland had no legal framework to “burn” them without also hitting depositors.

Bank of Ireland’s new holding company raised about €750 million through the sale of junior debt last September, as it became the first Irish bank to issue debt under the new European rules.

Permanent TSB has indicated that it will issue about €900 million of holding company debt over the next few years.