Ireland's government is considering wiping out the value of some junior bonds in Bank of Ireland
Finance Minister Michael Noonan said in a statement on Wednesday that he would consider applying to the courts for an order forcing losses of up to 100 percent on the face value of the subordinated debt. He has yet to make a decision on the matter.
The surprise move comes just two days after Bank of Ireland offered to buy back up to 1 billion euros worth of mortgage debt at a significant discount to help meet its capital targets under an EU-IMF bailout.
Stress tests in March showed Bank of Ireland needed to raise an additional 4.2 billion euros in core tier capital to bullet-proof its balance sheet against future property-related losses.
So far, it has generated 3.85 billion euros towards that goal, most of it by imposing losses on junior bondholders and through a 1.1 billion euros investment by a group of North American investors, who now own 35 percent of the bank.
Relations between the government and the Bank of Ireland have deteriorated in recent weeks after the lender, in which the state holds a 15 percent stake, refused a request from Prime Minister Enda Kenny to pass on a recent ECB rate cut to holders of its variable mortgage products.
Bank of Ireland is the only Irish lender to avoid falling into state control after a disastrous property crash and was the only domestic bank in receipt of government support to refuse Kenny's request.
(Reporting by Carmel Crimmins; Editing by Elaine Hardcastle)