Court told Minister's bonds move a 'choice'

AN INVESTMENT firm opposing the Minister for Finance’s bid to impose burden-sharing on subordinated bondholders in AIB has claimed before the Commercial Court that the Minister’s move is based on “choice, not necessity”.

British Virgin Islands registered Abadi Co Securities Ltd has, with Aurelius Capital Master and linked firms in a Cayman Islands registered investment fund, sought a range of documents for their legal challenges to the Minister’s move.

The documents include a report by international asset management firm BlackRock Solutions and other documents which led to the Central Bank recalculating AIB’s recapitalisation requirements at €13.3 billion, up from an initial €4.2 billion.

Lawyers for the Minister are opposed to handover of those and certain other documents and claim they are neither necessary nor relevant for the proper determination of the legal issues in the case.

A “trawl” through material the Central Bank had considered was not envisaged under the provision of the Credit Institutions (Stabilisation) Act permitting challenges to orders such as that obtained by the Minister, David Barniville SC said.

It was not open to the Minister to seek to interrogate the conclusions of the Central Bank concerning the capital requirements of AIB, Mr Barniville argued. The issue was whether the Minister’s opinion as to the necessity of the order sought by him was sound and the Minister had no reasonable grounds to question the €13.3 billion recapitalisation figure arrived at by the Central Bank. The focus of the court would be on the Minister’s opinion, not the opinions of others.

Lawyers for the Minister are also seeking orders requiring the companies to discover documents in advance of the challenge, to be heard on June 2nd by Mr Justice John Cooke.

The hearing of the discovery applications opened yesterday and are expected to conclude today.

The companies are challenging a subordinated liabilities order (SLO) secured from the High Court by the Minister last month in an application under the Credit Institutions (Stabilisation) Act.

The order provided for the Government to engage in a “liability management exercise” involving buying back debt from junior bondholders in AIB at a significant discount.

Abadi and Aurelius dispute the Minister’s entitlement to do this. They claim the April order was sought as a “stick” to beat bondholders with following insufficient take-up of an earlier bond buyback in January last. The order was discriminatory, unfair and inappropriate, they claim.

In submissions for Abadi yesterday, Jim O’Callaghan SC argued that, while the order was sought for the perfectly worthy and laudable aspiration of saving costs to the Irish taxpayer, such an objective was not provided for under the legislation.

The basis for the disputed order was choice, not necessity, he said. The legislation required the Minister to be of the opinion an SLO such as was made in this case was necessary to preserve or restore the financial position of a bank.

It was his case that the order was not necessary because recapitalisation of the banks could be achieved without it and it was in that context Abadi was seeking the BlackRock Solutions report and other documents related to the stress testing of Irish banks.