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Anglo Irish May Stop Payments On Subordinated Debt

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Anglo Irish May Stop Payments on Subordinated Debt (Update1)

July 9 (Bloomberg) -- Anglo Irish Bank Corp. said it may stop interest payments on some of its subordinated notes as it seeks approval to redeem as much as $4.5 billion of the debt.

The lender, which was seized by the government in January, may halt coupon payments on 1.2 billion euros ($1.68 billion) and 800 million pounds ($1.3 billion) of Tier 1 notes from September, the Dublin-based bank said today in a statement. The securities are issued by banks as capital required by regulators to cushion against losses.

Stopping interest payments on Tier 1 securities was a condition set by the European Commission when it approved a capital injection, the statement said. The Irish government has pumped 3 billion euros into the bank, the country’s third biggest, to boost capital eroded by losses on property loans. The bank posted a loss for the six months to March 31 of 3.77 billion euros.

“Obviously every euro less offered to bondholders is a euro gained by the Irish taxpayer,†Scott Rankin, analyst at securities firm Davy, said in a research note today. “In making its decision, the government will have to balance this upside with the possible downside associated with annoying liquidity providers.â€

The bank is “actively working†on a plan to buy back the Tier 1 notes, as well as 750 million euros and 300 million pounds of higher-ranking Tier 2 debt, the statement said. The offer is subject to regulatory and Department of Finance approval, it said.

Bond Buyback

The terms set by Europe allow the issuer to pay interest on one series of the Tier 1 securities, known as Tier One Non- Innovative Capital Securities, or “Tonics,†on July 23, the statement said.

Anglo Irish said May 29 that it will provide 7.5 billion euros to cover souring real estate loans. About 80 percent of its loans are to the property sector in Ireland, the U.K. and the U.S.

The government took control of the bank in January after a series of controversies. Chairman Sean Fitzpatrick resigned in December after saying he didn’t fully disclose his borrowings from the bank over an eight-year period. Chief Executive Officer David Drumm and Chief Financial Officer Willie McAteer also resigned.

To contact the reporter on this story: Ian Guider in Dublin at iguider@bloomberg.net.

Last Updated: July 9, 2009 07:08 EDT


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