Hi Paul,

Noonan will argue that AIB completely and totally bust without State capital. Sub debt worth zilch. In a fair world they should get nothing. Capital hierarchies are irrelevant.

If it was your money reluctantly going into a dead parrot business, would you not begrudge sub debt holders every last cent?

You know I would.

As I said in my post, I'm not even disputing that the Irish should have changed the terms of the bonds by using an SLO, only that they went way too far and quite unnecessarily. I think that mniam's point that taxpayers wouldn't have had to give up anything if offering a debt for equity swap at par is clearly wrong - they would have had to give up equity in the enlarged bank.

Ideally, a debt/equity swap would have been a better solution than what they did in the end, albeit more expensive.

However, should they, quite understandably, think that was being too generous, they could have followed the B&B model, which has proved a great success and imposed a very similar loss on bondholders without upsetting capital hierarchy rules.

Whilst achieving the same result, people trust the UK government to respect property rights whilst the Irish are now seen as cowboys. That's because the UK didn't use coercive tenders and didn't favour equity holders over bond holders.

It's a very important point and not one to be taken lightly.

WShak