The Bank of Ireland (nyse:ise), Allied Irish Bank (nyse:aib) and other Irish banks can look up (or down) to an example from a country considered to have a more solid economy: Denmark. Senior bondholders of Danish bank Amagerbanken are undergoing a haircut.
Here’s a quote from Alphaville’s Tracy Alloway, that quotes CreditSights:
This means that holders of senior debt and deposits over the €100,000 limit can expect a haircut of around 41% …While such action is easier in respect of a relatively small bank, this might well set a precedent for the way failing banks are treated in other jurisdictions
For quite a long time, there’s talk about restructuring / haircut / default in Irish banks. The Irish opposition party Fine Gael openly calls for this, towards the general elections in Ireland. Their call answers the Irish people’s grievances about having to pay for the wrongdoings of the banks, and it is also based on the precedent in Iceland – where the government just let the banks fail, and the state recovered relatively fast.
While Iceland is a small country and not a member of the EU, Denmark is considered a sound, solid country, and also a member of the European Union. This precedent could pave the road for defaults in Irish banks. Jean-Claude Trichet said that Ireland must respect the bailout plan, continuing the current path. He was asked about it in the recent press conference, where he played down inflation.
Default for senior debt holders will set fire in the currently contained debt crisis. EUR/USD could fall below 1.30 once again. The pair is currently at 1.3550.
For more on the common currency, see the EUR/USD forecast.