Ruling could cost banks €460m

The IBRC special liquidator’s decision not to challenge a ruling by Justice Briggs in London could end up costing Irish pillar banks hundreds of millions of euro.

The original ruling found that IBRC had acted illegally in forcing Assénagon to write down the value of its €17m in Anglo Irish bonds to just €170. The bond buyback programme had been announced as part of the Government’s promise to burn bondholders and was known as a liability management exercise (LME).

Documents obtained by the Irish Examiner under the Freedom of Information Act show that Irish banks have a total exposure of €460m to subordinated bondholders as a result of the ruling being allowed to stand.

A spokesperson for the Department of Finance said it could not force KPMG to continue to challenge the ruling, despite the implications it could have for Irish banks.

“The continuation of the appeal against the judgment in the Assénagon case is a matter for the special liquidator,” a spokesperson for the department said.

KPMG refused to comment.

The decision not to challenge the Justice Briggs ruling on Mar 11 was originally reported by the specialist news service Debtwire, which cited two unnamed sources close to the case.

The Department of Finance had desperately tried to strike a deal with Assénagon management in advance of the ruling to prevent a legal precedent being established, but Assénagon had refused.

The department said that the precedent established by the Justice Briggs ruling will not automatically result in the full value of the bonds being restored to the bondholders forced to take losses on AIB, Bank of Ireland, Irish Nationwide Building Society, and Irish Life & Permanent bonds,

“The Assénagon judgment relates only to specific aspects of the LME conducted by Anglo Irish Bank and not to the LMEs undertaken by the other financial institutions. The LME exercises conducted by AIB/BOI, INBS and ILP in 2011 following the passing of the Credit Institution Stabilisation Act in Dec 2010 occurred in a very different factual and legal context,” the spokesperson said.

However, correspondence within the Department of Finance reveals that the bonds would be vulnerable to a challenge should bondholders choose to take legal action.

“The notes in other institutions will not be immediately reinstated and will obviously need to be challenged individually; however, the judgment in this case creates a very unhelpful precedent,” correspondence revealed.

Neither AIB nor Bank of Ireland were willing to comment on the developments.


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