Bondholders in Allied Irish Bank are preparing to sue the Irish government over losses they expect to be forced to take, a British newspaper said on Monday.
Investors, including some of the world's largest pension funds, held talks on Friday about taking Ireland to court if it forces a second round of "haircuts" on the value of subordinated debt issued by Allied Irish, the Daily Telegraph said.
"Many of these funds are not going to want to touch Irish paper for a long time," the Daily Telegraph cited one source as saying.
"I hope governments realize they are angering precisely the people they are going to need to convince to buy new bonds."
The paper said law firm Bingham McCutchen was organizing the group and had hosted a conference call on Friday for Allied Irish investors wishing to take legal action.
Fine Gael and Labour parties are likely to take control of the country after an election due early next year, ending the unpopular reign of Prime Minister Brian Cowen who has faced a storm of criticism for his handling of Ireland's crisis.
With Dublin likely to end up effectively nationalizing Allied Irish Banks, Fine Gael wants to force junior bondholders at the bank to take deep discounts before selling the lender to a large, foreign bank.
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