ALLIED IRISH Banks has said it will raise about €2 billion from forcing losses of up to 90 per cent on subordinated bonds following the completion of its buyback of debt from junior bondholders.

There was a take-up of almost 97 per cent among investors in the three remaining subordinated bonds. The bank opened the buyback to investors across 18 bonds.

The bank had previously said it would make at least €1.6 billion from its offer to bondholders.

Minister for Finance Michael Noonan said that the Government will reduce the latest €24 billion bank recapitalisation bill by about €5 billion by forcing losses on the banks’ subordinated bondholders.

AIB must raise €13.3 billion – or €14.8 billion including its newly acquired subsidiary, EBS – after the Central Bank’s stress tests of the banks set higher capital levels to restore confidence in the shattered Irish banking system.

The banks must meet the higher capital ratios by the end of this month under the terms of the EU/IMF programme. At the publication of the National Treasury Management Agency’s 2010 report, Mr Noonan said burden-sharing with junior bondholders meant that €16 billion originally earmarked for the banks in the €85 billion EU/IMF bailout could be directed towards Government requirements.

NTMA chief executive John Corrigan said this gave “much more wriggle-room” to the exchequer. The EU/IMF loans would fund the exchequer until the end of 2013, he said.

Mr Noonan said the Government had “power under law” to force the recapitalisation of Irish Life and Permanent, despite shareholders rejecting the proposal.

The Government had an obligation to recapitalise the company following the stress tests under the terms of the EU/IMF programme.