Borrowing to buy BOI Shares????????

Wollie · 10-07-2008 8:30pm

In reply to Pocketdooz, I don't think we're too far apart, and we both understand the points the other is making. For those not familiar with stock markets however, it is worth pointing out that the dividend yield on BOI shares is now over 12%, which gives quite a bit of headroom for future increases in interest rates on borrowings or a reduction in the bank's dividend (or a combination of both). It is also worth noting that companies always aim to pay out only a proportion (generally around 50%) of their earnings in dividends, so that they can take the pain of a hit to earnings without having to cut their dividend. For a Bank to cut its dividend, it is a major sign of weakness, so they will do what they can to avoid that scenario. Having said all that, there's a wonderful phrase in the investment world, that there's no such thing as a free lunch. If something looks too good to be true, it normally is. The lesson therefore is that the market is pricing in some pretty woeful future bad news into the share price of BOI (and other banks). If our friend who posted this question originally is a betting man (or woman) and can afford to lose a few quid, then it's not a bad bet, but it definitely is a gamble, not an investment.

pocketdooz · 11-07-2008 12:04am

Well put Wollie

My only concern is that people will read this thread and think that there is any good in this idea.

Hopefully not

Minder · 11-07-2008 2:13pm

portomar wrote: »

what if interest rates hit 8/10 percent? boi will tank and your loan will be much pricier than it is now. there are many of these possible outcomes, i wouldnt do it

I don't follow. Unsecured loans are not made on a variable interest rate. Whatever rate you get when the loan comes into existence is the prevailing rate for the life of the loan. Interest rates can rise and fall without affecting the cost of the loan.

Borrowing may dry up if interest rates climb, effecting the bank's return, and so the value of the shares, but the cost side of the calculation doesn't change.

pocketdooz · 11-07-2008 2:29pm

Minder wrote: »

I don't follow. Unsecured loans are not made on a variable interest rate. Whatever rate you get when the loan comes into existence is the prevailing rate for the life of the loan. Interest rates can rise and fall without affecting the cost of the loan.

Borrowing may dry up if interest rates climb, effecting the bank's return, and so the value of the shares, but the cost side of the calculation doesn't change.

Lol, please - this is absolutely wrong.

all bank loans are variable - do you really think a bank will give a 5 year loan at a fixed rate, unsecured ? Wow, there really is some bad info. in this thread !

pocketdooz · 11-07-2008 2:33pm

Minder wrote: »

I don't follow. Unsecured loans are not made on a variable interest rate. Whatever rate you get when the loan comes into existence is the prevailing rate for the life of the loan. Interest rates can rise and fall without affecting the cost of the loan.

Borrowing may dry up if interest rates climb, effecting the bank's return, and so the value of the shares, but the cost side of the calculation doesn't change.

Minder - the Internet is your friend. At least make a cursory attempt to find out if what you are writing is accurate . . . from AIB's website . . .

Personal Lendings APRPersonal Loans

**All Personal Loans are based on the Bank's Variable 'A' Loan Rate and the amount borrowed.

stepbar · 12-07-2008 10:42am

pocketdooz wrote: »

Lol, please - this is absolutely wrong.

all bank loans are variable - do you really think a bank will give a 5 year loan at a fixed rate, unsecured ? Wow, there really is some bad info. in this thread !

All bank loans are not variable. They can be fixed or variable and yes you can get a 5 year loan fixed if you want to, unsecured. Yes all loan are based on the underlying variable base rate i.e ECB.

I may add that I'm a banker and knows what I'm talking about unlike some people round here. Where in gods name did you pull a figure of 25% (by which BOI's earnings would fall)?

pocketdooz · 12-07-2008 3:42pm

stepbar wrote: »

All bank loans are not variable. They can be fixed or variable and yes you can get a 5 year loan fixed if you want to, unsecured. Yes all loan are based on the underlying variable base rate i.e ECB.

I may add that I'm a banker and knows what I'm talking about unlike some people round here. Where in gods name did you pull a figure of 25% (by which BOI's earnings would fall)?

Wow - you're a banker and know what you're talking about. That's great.

Fair enough - please tell me which bank will loan a 22 year old €20,000 unsecured for 5 years at a fixed rate in this current rising interest rate, inflationary environment to buy bank shares . . . (a link or posting would be good for clarity)

Where in God's name did I pull that figure . . . Brian Goggins BOI Investors Report last week, and also quoted in the Sunday Business Post last weekend. By the way, if you don't learn that in Banker school, Brian Goggin is Chief Executive of BOI so will probably know what he is talking about, wouldn't you agree?

By the way, not that it really matters, but just cos of your little childish jab in your post, I'm also a MScFinance / CFA and work in a bond trading firm in the city centre, so I have a fair idea what I'm talking about - and would not post something online if I wasn't pretty sure it was accurate.

Also, it wasn't an opinion of how BOIs earnings WOULD fall - it was 25% that they have fallen . . . anyway, I hope this answers your question

rugbyman · 12-07-2008 11:36pm

Good man pocketdooz, just the man i need. i know of an investor who is thinking of taking a hit on bonds which pay 4 per cent p.a. perhaps even 4.75.
they are currently bid at 20% of face value i.e. 200,000 for 1,000,000 invested some years ago.
does this mean i can buy them, say 50,000 worth and get a return of 4 % on the nominal value of 250,000 in other words an annual return of 20 per cent until the bond issuer buys me out.

If this is true, an this investor does not sell, are there others who will.

in the case of some bond issued by aGerman Bank which has folded recently, are these gauranteed for ever by the German Govt.

pocketdooz · 13-07-2008 4:28am

rugbyman wrote: »

Good man pocketdooz, just the man i need. i know of an investor who is thinking of taking a hit on bonds which pay 4 per cent p.a. perhaps even 4.75.
they are currently bid at 20% of face value i.e. 200,000 for 1,000,000 invested some years ago.
does this mean i can buy them, say 50,000 worth and get a return of 4 % on the nominal value of 250,000 in other words an annual return of 20 per cent until the bond issuer buys me out.

If this is true, an this investor does not sell, are there others who will.

in the case of some bond issued by aGerman Bank which has folded recently, are these gauranteed for ever by the German Govt.

Sorry but I don't understand your post - if you PM me I will explain what you want to you.

From your post though it's not clear.

Thanks

bosra · 13-07-2008 8:22pm

I agree with Pocket on the earnings outlook for the Irish banks. I am an equity trader with no positions in the banks.

The bad debt cycle needs to be confronted by the banks instead of sweeping it under the carpet. By their own admission, the last few years have seen record amounts of credit expansion in Ireland. This has coincided with the house market topping out. What does this mean? It mean developers have been given 100s of millions to buy land that is now worth alot less and to build houses they can't sell at the prices they accounted for when they took the loans. Cashflow is key here. It's like a noose. Eventually the banks will have to take the hit on their balance sheets just like in the US. Remember the US housing downturn started a few years back ..First we heard it was a soft landing..then it took some time for the bad debts to feed through..That is going to be the experience in Ireland too. So when the Central bank tell you everything is fine , start asking questions..

I could go on ad nauseum about all the different segments that are potential bad debts waiting to happen for the banks.. but I won't cause my fingers are getting sore now and I always stop reading after the first 5 lines.. anyway suffice to say..if the banks get away with 75% of their earnings demolished..that would be a good result..
One last point..Don't believe any hype about rights issues or capital injections saving the day..they havent in the US or the UK and they wont do the magic here either.. this is a process of price adjustments..it will take time..alot of dead wood will have to be cut out..there is no miracle cure

stepbar · 13-07-2008 9:33pm

pocketdooz wrote: »

Wow - you're a banker and know what you're talking about. That's great.

Fair enough - please tell me which bank will loan a 22 year old €20,000 unsecured for 5 years at a fixed rate in this current rising interest rate, inflationary environment to buy bank shares . . . (a link or posting would be good for clarity)

Plenty of them. All personal loans are given unsecured and at fixed and variable rates. If the individual has the resources to repay the money over 5 years and satisfies the banks credit criteria, I can't see why they wouldn't. Just because one bank won't lend him what he needs doesn't mean that another bank won't. What he does with the money is not relevant here. Tell me what's stopping him from saying it's for something else? Nothing. What can the banker do if he's lying? Nothing but work on the basis that he's telling the truth and do plenty of fact finding and background checks on the customer. If he does lie about the use of the money that's another issue and will only become relevant if he defaults.

Where in God's name did I pull that figure . . . Brian Goggins BOI Investors Report last week, and also quoted in the Sunday Business Post last weekend. By the way, if you don't learn that in Banker school, Brian Goggin is Chief Executive of BOI so will probably know what he is talking about, wouldn't you agree?

Link please.

.

pocketdooz · 13-07-2008 9:55pm

stepbar wrote: »

.

Find it yourself.

BOI investors meeting last week

Or last Sundays Business Post

pocketdooz · 13-07-2008 9:56pm

stepbar wrote: »

.

It's obvious from the bolded part of your post above, that begins with " Plenty of them . . . "

that you have no clue what you are talking about.
Sorry but I won't waste my time here.

stepbar · 13-07-2008 11:11pm

pocketdooz wrote: »

It's obvious from the bolded part of your post above, that begins with " Plenty of them . . . "

that you have no clue what you are talking about.
Sorry but I won't waste my time here.

Of course.... :rolleyes:

Lending is my job. So yes I do know what I'm talking about. Are you seriously telling me if said 22yr old was earning (lets say for example) 35k a year, in full time employment and living at home that he wouldn't get a loan of 20k? Don't be silly.... It's not black and white. Saying he wouldn't get the money is pure ignorance without finding out the particulars. I wouldn't like to see you working in a branch because you'd turn all the customers away with an attidute like that.

Dividends on BOI shares very likely to be cut as earnings are down 25%

This is what you said. Now please provide a link.

EDIT: Actually after a lot of searching I found one

http://uk.reuters.com/article/hotStocksNews/idUKL0835199920080708

No mention of 25% anywhere. So unless you have something to contradict me with, we will work on the basis that the 25% figure was plucked out of the sky.

pocketdooz · 13-07-2008 11:46pm

stepbar wrote: »

Of course.... :rolleyes:

Lending is my job. So yes I do know what I'm talking about. Are you seriously telling me if said 22yr old was earning (lets say for example) 35k a year, in full time employment and living at home that he wouldn't get a loan of 20k? Don't be silly.... It's not black and white. Saying he wouldn't get the money is pure ignorance without finding out the particulars. I wouldn't like to see you working in a branch because you'd turn all the customers away with an attidute like that.

This is what you said. Now please provide a link.

EDIT: Actually after a lot of searching I found one

http://uk.reuters.com/article/hotStocksNews/idUKL0835199920080708

No mention of 25% anywhere. So unless you have something to contradict me with, we will work on the basis that the 25% figure was plucked out of the sky.

Like I said, The 25% figure was quoted in last week's B.O.I.'s Investors Report and last Sundays Business Post.

I'm sure they're not that hard too find ! Maybe they have one in your ' branch ' ? ? ?

Anyway, you sound like you want to make a petty argument out of this so . . .

Bye

stepbar · 13-07-2008 11:55pm

pocketdooz wrote: »

Like I said, last week's BOI Investors Report or last Sundays Business Post.

I'm sure they're not that hard too find !

Anyway, you sound like you want to make a petty argument out of this so . . .

Bye

It would be easy for you to admit that nothing of the sort was said. The reality is that what was really said was more like this:

http://uk.reuters.com/article/hotStocksNews/idUKL0843152720080708
http://www.bankofireland.com/investor/financial_information/2008/General_Content_1000294.html

No figure was mentioned. If you're going to come up with facts at least give ones that are correct.

Minder · 15-07-2008 3:02pm

pocketdooz wrote: »

Minder - the Internet is your friend. At least make a cursory attempt to find out if what you are writing is accurate . . . from AIB's website . . .

Personal Lendings APRPersonal Loans

**All Personal Loans are based on the Bank's Variable 'A' Loan Rate and the amount borrowed.

pocketdooz wrote: »

Fair enough - please tell me which bank will loan a 22 year old €20,000 unsecured for 5 years at a fixed rate in this current rising interest rate, inflationary environment to buy bank shares . . . (a link or posting would be good for clarity)

I don't work in banking and you are correct in that I didn't check if Irish banks were lending on the basis of a variable rate for the life of the loan. If you are correct, that is news to me.

But your info from AIB (without link) doesn't support your claim that the variable rate applies for the life of the loan - it merely states that the prevailing rate at the time of the loan is subject to variation over the time that the bank offers personal loans.

stepbar · 15-07-2008 6:48pm

Minder wrote: »

I don't work in banking and you are correct in that I didn't check if Irish banks were lending on the basis of a variable rate for the life of the loan. If you are correct, that is news to me.

But your info from AIB (without link) doesn't support your claim that the variable rate applies for the life of the loan - it merely states that the prevailing rate at the time of the loan is subject to variation over the time that the bank offers personal loans.

Well I think it's clear he's hasn't a clue TBH. But anyhow let's not let that get in the way of the truth......

Goodluck2me · 15-07-2008 10:49pm

boomboombazza wrote: »

I had a feeling this would be the response but my reasoning is as follows.

borrow 20k.
costs lets say 7k in interest(it wont cost this much will it?
thats 27k

at todays shareprice you'd get approx 3650 shares(havent checked share price in the last few days but have an idea that its around 5.30/5.50)

in 5 years its not inconcieveable for the shares to be €10 each considering what they were a year or so ago

thats €36k - €27k = 9k profit

One vital thing I think you are missing out on is the time value of money.
9K in 5 years, is not the same as 9K now.
You would need to factor in that if you borrowed the 20K and invested it somewhere with a higher yield for example with no risk, you would'nt necessarily make a profit if the inflation between now and then was say 10% to use a bloated figure.
You are taking on a huge risk for what could end up with a very small increase in purchasing power/ability to consume/invest, or indeed a massive decrease.

From this and many of the other posts it does appear that you have taken to BOI as a "stock i want to invest in" rather than "stock which I strongly believe, due to prevailing and likely future market conditions will rise significantly".

Minder · 16-07-2008 11:19am

stepbar wrote: »

Well I think it's clear he's hasn't a clue TBH. But anyhow let's not let that get in the way of the truth......

I think the AIB information is unclear. First there is this statement here...

Important / Regulatory Notice
Lending criteria, terms and conditions apply. Credit facilities are subject to repayment capacity and financial status and are not available to persons under 18 years of age. Security may be required. A typical EUR5000 three year variable interest rate loan will have monthly repayments of EUR161.94 APR 10.75%. If the APR does not vary during the term of the loan the total cost of credit of this loan i.e. total amount repayable less the amount of the loan, would be EUR829.84. (Rates and repayments are correct as at 15/07/2008 based on loan drawdown on 01/08/2008 with first repayment 01/09/2008). AIB Payment Protector for this lending is arranged by AIB Insurance Services Ltd. Terms and conditions apply. AIB Insurance Services Ltd. and Allied Irish Banks, p.l.c. are regulated by the Financial Regulator.

AIB strongly recommends that before purchasing this product that you read the Important Lending Information in our Related Information section below.

which suggests that the loan may be on a variable interest rate for the life of the loan, as opposed to a fixed interest rate. But then I found this statement here...

The total cost of our loans is made up of interest based on our Variable ‘A’ Loan Rate for personal customers and on the amount borrowed. This interest rate is at present 11.70%. This may change. If we approve you for a loan, the actual rate applicable and the total cost of credit will be shown on the first page of the Credit Agreement which will be sent to you for signing if you wish to proceed.

This is the sort of agreement I would expect to get if I apply for a loan. A fixed rate that applies for the life of the loan, but is subject to the peculiarities of my application - am I a good credit risk, what is the money for, how much will I borrow and for how long.... The variable part of it means that the bank is not bound to offer the same rate to every Joe Bloggs that makes the same application.

pocketdooz · 16-07-2008 1:09pm

Minder wrote: »

I think the AIB information is unclear. First there is this statement here...

which suggests that the loan may be on a variable interest rate for the life of the loan, as opposed to a fixed interest rate. But then I found this statement here...

This is the sort of agreement I would expect to get if I apply for a loan. A fixed rate that applies for the life of the loan, but is subject to the peculiarities of my application - am I a good credit risk, what is the money for, how much will I borrow and for how long.... The variable part of it means that the bank is not bound to offer the same rate to every Joe Bloggs that makes the same application.

This is not true - please, please find out what you're talking about. Simply ring any of the banks and ask them instead of taking the wrong meaning from these statements. This thread has been de-railed anyway - last time I'm checking it TBH

Minder · 16-07-2008 1:29pm

pocketdooz wrote: »

This is not true - please, please find out what you're talking about. Simply ring any of the banks and ask them instead of taking the wrong meaning from these statements. This thread has been de-railed anyway - last time I'm checking it TBH

You have staked your considerable reputation on your interpretation being correct - despite being told otherwise by someone who lends money for a living; and despite what you say, the discussion is relevant.

stepbar · 16-07-2008 7:37pm

pocketdooz wrote: »

This is not true - please, please find out what you're talking about. Simply ring any of the banks and ask them instead of taking the wrong meaning from these statements. This thread has been de-railed anyway - last time I'm checking it TBH

Of course it would be last time :rolleyes:

Lending 101
Fixed rate = the same rate for the entire life of the loan e.g 7.5% fixed for 5 years.
Variable rate = a rate that can change over the life of the loan and can be increased or decreased in line with bank policy / ECB base rates / or generally for any other reason the bank sees fit.

End of lesson.

Anyhow I won't waste anymore time on you because it's fairly clear by now that you are talking through your hat.

BTW while we're at it I'd love to know where you got the "BOI Investor Report" you talk of...... because I've spent 3 days searching for it.... and people in the know are a bit miffed as well. Some statistic to be coming out with.

Now back on topic.....

I see that 8 of BOI's senior management bought shares recently -

http://www.rte.ie/business/2008/0716/boi.html

I don't think they went far enough. €12k odd of shares each...... Very poor and certainly wouldn't produce any sense of renewed optimism for the shares at the moment. Make or break time - 6 month trading figures in Sept / Oct 08. Keep an eye out on the share price until then.

rugbyman · 16-07-2008 10:22pm

backin the mists of time I wrote in this thread.have been away for a week.
I bought 4510 euro worth of b o i shares(1,000 shares)( plus taxes and fees ) within two days was up,a potential 500 euro. my children could have pocketed 400 after fees. Thought about sellling. was not near a computer to do so. could have bought them back today at an even better price but c`est la vie. Not much left in the piggy bank ,but if there was,?

Genco · 17-07-2008 2:31am

stepbar wrote: »

Now back on topic.....

I see that 8 of BOI's senior management bought shares recently -

http://www.rte.ie/business/2008/0716/boi.html

I don't think they went far enough. €12k odd of shares each...... Very poor and certainly wouldn't produce any sense of renewed optimism for the shares at the moment. Make or break time - 6 month trading figures in Sept / Oct 08. Keep an eye out on the share price until then.

Did you read the RNS statement ?

I dont think the shares relate open market purchases.

The announcement related to the "acquisition of beneficial interest in stock under the Staff Stock Issue 2008. Stock held by Trustees named at 7 for three years".

Idu · 17-07-2008 9:44am

rugbyman wrote: »

backin the mists of time I wrote in this thread.have been away for a week.
I bought 4510 euro worth of b o i shares(1,000 shares)( plus taxes and fees ) within two days was up,a potential 500 euro. my children could have pocketed 400 after fees. Thought about sellling. was not near a computer to do so. could have bought them back today at an even better price but c`est la vie. Not much left in the piggy bank ,but if there was,?

And if you'd held off completely like you were advised to do then you're children would still have their money. The market is great for "what if's" and its usually the people losing money that have the best "what if" stories.

Also a €400 return on a €6000 investment is terrible risk reward. In all honesty you should have whatever money is left to your children now because they'd probably do a much better job than you with it

stepbar · 17-07-2008 11:13pm

Genco wrote: »

Did you read the RNS statement ?

I dont think the shares relate open market purchases.

The announcement related to the "acquisition of beneficial interest in stock under the Staff Stock Issue 2008. Stock held by Trustees named at 7 for three years".

Oh...... The SSI was 3% of gross salary this year. I did think it was a bit strange as the shares staff get are set at €4.51. Perhaps management took a "share" cut so

In that case I'm suprised that RTE reported this news item as this event (stock issue) would happen every year and wouldn't cost management anything unless they chose to forgo their months salary to buy shares (which it's clear that they didn't this time). P1ss poor TBH in the present circumstances.

pocketdooz · 18-07-2008 1:32am

I don't intend on being bad on Stepbar - you seem to want to get in an argument or something.

From your comments - it's obvious to me, that you really have no idea at all what you are talking about. That's fine - if you're comfortable with making a fool of yourself here on boards there's nothing I can do about that.

This isn't a kiddies forum. People post here to get accurate information - not the Lending 101 rubbish you have posted.

Either way, I hope you get a real job soon and you can add something constructive to this forum. Unlikely in my opinion.

What you've added so far in this thread is either wrong (usually) or inaccurate . . . .

pocketdooz · 18-07-2008 1:34am

stepbar wrote: »

Oh...... The SSI was 3% of gross salary this year. I did think it was a bit strange as the shares staff get are set at €4.51. Perhaps management took a "share" cut so

In that case I'm suprised that RTE reported this news item as this event (stock issue) would happen every year and wouldn't cost management anything unless they chose to forgo their months salary to buy shares (which it's clear that they didn't this time). P1ss poor TBH in the present circumstances.

Mods - Can you please take a look at this ?

You shouldn't be allowed post such dribble in the I&M section ?

rugbyman · 18-07-2008 2:59pm

there seems to be a bit of venom floating about on this thread bits of narky commenting

There have been a number of well written pieces, but mostly doom and gloom.

when this thread was started by boombaza,(forgive the spelling) it was fairly obvious that the overselling of the Irish banks was a bit overdone.Most of the posters gleefully wanted to see further drops, and therefore, to be right.

I bought 1,ooo shares at 4.51, I can sell today at 5.78, am up 1,270 euro less the fees.

tried to sell them just now, could not find easily how to do that on the NIB website,so will let the hare sit.

Borrowing to buy BOI Shares????????

Comments