Bank of Ireland debt

yeppydeppy

I, like most people I know, have been finding it difficult financially during this recession. As I have dealings with the above named institution I was wondering how much does the bank of Ireland owe the government? If that figure was then broken down to the tax payers of Ireland, how much does the bank of Ireland owe each of us?

Welease

It doesn't owe us a penny.. We own a % of the Bank as a result of the bailout..

Edit - Actually technically, it still does owe us money.. but when that falls due we will get more shares if BOI can't raise the capital via other methods..

Cool Mo D

It doesn't quite work like that. In exchange for giving Bank of Ireland money, we got preference shares in the bank, which are supposed to mean we get first claim on their profits later. If they owed us back the money we gave them, it would be defeating the purpose of the bailout. We now own about 40% of Bank of Ireland, I think.

Bank of Ireland do owe lots of money to the European Central Bank though.

hinault

yeppydeppy wrote: »

I, like most people I know, have been finding it difficult financially during this recession. As I have dealings with the above named institution I was wondering how much does the bank of Ireland owe the government? If that figure was then broken down to the tax payers of Ireland, how much does the bank of Ireland owe each of us?

Bank of Ireland has received two capitalisation injections from the Irish taxpayer
€3.5 billion in 2009 and €5.2 billion in March 2011.

Also the Irish taxpayer has indemnified all of the bank liabilities of Bank of Ireland.

Scofflaw

hinault wrote: »

Bank of Ireland has received two capitalisation injections from the Irish taxpayer
€3.5 billion in 2009 and €5.2 billion in March 2011.

Also the Irish taxpayer has indemnified all of the bank liabilities of Bank of Ireland.

As far as I know, BOI have received only one capital injection so far, of €3.5bn. The €5.2bn is the capital required as a result of the stress tests in March, and has not been put in - BOI are trying to raise some of it themselves, and some of it will come through burning subordinated debt in BOI, although, in the end, the majority of it is likely to come from the State.

Bank of Ireland (BKIR.I) has appointed UBS, Deutsche Bank and Credit Suisse to advise on its attempts to raise 4.2 billion euros ($6.05 billion) of capital by the end of July, a spokeswoman for the bank confirmed on Wednesday.

The bank, which was told to raise the capital as part of the government's plans to recapitalise its financial system by a further 24 billion euros, said it would work to raise cash through a combination of capital-management initiatives.

The bank's chief executive said a month ago that UBS, Deutsche and Credit Suisse would likely advise on the fundraising drive, adding that it would update the market "in coming weeks" about its capital-raising plans.

Bank of Ireland, which is 36-percent state owned, raised 3 billion euros through a number of exercises last year to meet a previous target handed to them by the central bank.

And the blanket guarantee expired late last year - since then, the taxpayer has not been guaranteeing all of BOI's liabilities. We're guaranteeing only (!) €6.2bn of BOI's €26.4bn.

So, to come back to your original question, BOI currently owes €2484 per household, €5211 per taxpaying individual - and those figures may rise to €6910 per household and €14,495 per individual taxpayer, not counting the guaranteed debt.

cordially,
Scofflaw

later12

Scofflaw wrote: »

As far as I know, BOI have received only one capital injection so far, of €3.5bn. The €5.2bn is the capital required as a result of the stress tests in March, and has not been put in - BOI are trying to raise some of it themselves, and some of it will come through burning subordinated debt in BOI.

That's right, although I think it is anticipated by now that BKIR have little prospect of raising this money on haircuts and capital building alone, the deadline for which is fast approaching, June, I think. However perhaps they can bring about a debt for equity agreement with their junior bondholders (who remain to the tune of about €3bn so worth examining) which I wouldn't quite call burning, it would be far more preferable (and profitable) to see that from a financial standpoint than even a negotiated haircut.

fred252

later10 wrote: »

That's right, although I think it is anticipated by now that BKIR have little prospect of raising this money on haircuts and capital building alone, the deadline for which is fast approaching, June, I think. However perhaps they can bring about a debt for equity agreement with their junior bondholders (who remain to the tune of about €3bn so worth examining) which I wouldn't quite call burning, it would be far more preferable (and profitable) to see that from a financial standpoint than even a negotiated haircut.

it seems one mans "burning" is another man's "restructuring" or another man's "debt for equity swap". whatever way to say it, isn't this what the EU are trying to prevent?

later12

fred252 wrote: »

it seems one mans "burning" is another man's "restructuring" or another man's "debt for equity swap". whatever way to say it, isn't this what the EU are trying to prevent?

Yes this is a bit of a myth that unfortunately has been doing the rounds since restructuring first hit the agenda in a significant way.

Restructuring is a very broad term, but voluntary restructuring and default are in terms of the law and in terms of the working reality, very different proposals. Debt for equity might be similar to restructuring, but no, these options are all quite different to one another and in terms of the EU I can't imagine any opposition to a debt for equity agreement on junior debt in Bank of Ireland.

POINTBREAK

later10 wrote: »

Yes this is a bit of a myth that unfortunately has been doing the rounds since restructuring first hit the agenda in a significant way.

Restructuring is a very broad term, but voluntary restructuring and default are in terms of the law and in terms of the working reality, very different proposals. Debt for equity might be similar to restructuring, but no, these options are all quite different to one another and in terms of the EU I can't imagine any opposition to a debt for equity agreement on junior debt in Bank of Ireland.

-
Whats "Junior" debt?
Do you think lenders would be happy with a straight forward debt for equity sway of would they need a sweetener?

later12

POINTBREAK wrote: »

-
Whats "Junior" debt?
Do you think lenders would be happy with a straight forward debt for equity sway of would they need a sweetener?

Well it has already made some conversions last week, and yes some sweeteners help it, like the government of ours swapping €1bn of its preference shares in the bank into ordinary stock... which went somewhat unremarked upon, I thought.

Junior debt is that which has a lower priority than other forms of debt when a corporation, like a bank, is liquidated. They're towards the back of the queue for their money.

beeftotheheels

POINTBREAK wrote: »

-
Whats "Junior" debt?
Do you think lenders would be happy with a straight forward debt for equity sway of would they need a sweetener?

We tend to refer to debt differently and use terms interchangeably which I guess doesn't help anyone.

Senior Secured - The best debt is that which is secured on assets (provided that those assets are performing) since the debt is protected from the performance of the business as a whole. If BOI had 3bn in loans to German Manufacturers and took on secured borrowings against those loans then those bondholders know that provided the German manufacturers pay back BOI the cash will go straight back out of BOI to them. This debt is considered low risk so carries a lower coupon.

Senior Unsecured - not as good as secured, but is still the first debt to be repaid out of any cash BOI has hanging around (other than the cash for the secured lenders) so traditionally viewed as slightly riskier than secured, but still pretty safe and thus a reasonably low coupon.

Junior/ Sub/ mezz is the debt which can only be repaid after all the senior is repaid and so is viewed as higher risk and thus higher reward.

Within senior secured you will have different types of debt secured against different assets, within senior you can have tranches which have their own ranking system in terms of seniority (i.e. first paid, lower risk, lower reward), within junior/ sub/ mezz you will find many different tranches which means that some of them are junior to (i.e. paid after, higher risk, higher reward) others.

ps Sub is short for subordinated meaning debt which is subordinated to (junior to) other debt. Mezz is short for mezzanine, and in the same way that a mezz floor is somewhere between the ground and first floors, mezz debt is somewhere between debt and equity (debt holders always being paid off before equity holders in a liquidation) so the most junior form of debt.

fred252

later10 wrote: »

Yes this is a bit of a myth that unfortunately has been doing the rounds since restructuring first hit the agenda in a significant way.

Restructuring is a very broad term, but voluntary restructuring and default are in terms of the law and in terms of the working reality, very different proposals. Debt for equity might be similar to restructuring, but no, these options are all quite different to one another and in terms of the EU I can't imagine any opposition to a debt for equity agreement on junior debt in Bank of Ireland.

not sure why you can't imagine any opposition from the EU to a debt for equity agreement on junior debt in Bank of Ireland. why have they insisted on paying all junior debt up to now? i agree with what you're saying but it baffles and frustrates me that all junior debt holders have been paid up to this point.

later12

fred252 wrote: »

not sure why you can't imagine any opposition from the EU to a debt for equity agreement on junior debt in Bank of Ireland. why have they insisted on paying all junior debt up to now? i agree with what you're saying but it baffles and frustrates me that all junior debt holders have been paid up to this point.

At this point the relevant bondholders who have (so far) accepted such conversions would be perceived to be more enthusiastic about it than, for example, negotiating haircuts, which was always going to be the case on this debt class. The EU Commission and the ECB have never been opposed, outright, to, haircuts on the junior classes of debt specifically, nor to bondholders agreeing to convert.

Much of the previous debt for equity talk revolved around imposing the equity conversion on almost everybody.

beeftotheheels

We can see that the AIB sub holders in court are complaining that the buy-back denies them the possibility to participate in the business if it returns to growth so you would think they would be dead keen for a debt equity swap (which would give them the chance to participate).

However, herein lies the issue with debt equity swaps - what value you swap at!

A company can only issue shares up to the market value of any non-cash consideration, but what is the market value of AIB sub? Lets say AIB shares are today trading at €1 and have a nominal value of €0.10.

If management are looking to buy it back at 10c in the euro then they believe that the sub is worth 10c in the €1 so they will look to convert something like €11 of sub debt into 1 share (they have to adjust for the dilution of other shareholders so it isn't the obvious 10 for 1). But the bondholder believes that his debt is worth 20c in the €1 so he thinks he should get 1 share for about €5.50 of debt held.

So how do you square the circle? Well, you need agreement of the majority of each class of the bondholders involved (and the shareholders as any swap will dilute them) and then the High Court can make it so. This means that it is a little more complex, and a little less one sided than some commentators would have us believe.

The buy-back can be taken up on a bondholder by bondholder basis so in some regards it is easier, even though it involves a cash outflow.

Scofflaw

fred252 wrote: »

not sure why you can't imagine any opposition from the EU to a debt for equity agreement on junior debt in Bank of Ireland. why have they insisted on paying all junior debt up to now? i agree with what you're saying but it baffles and frustrates me that all junior debt holders have been paid up to this point.

Er, no, they certainly haven't been:

Subordinated debt holders in Anglo Irish Bank are being invited to exchange their exiting debt for new debt at a ratio of 0.2. That means they will get 20 cents on the dollar (or euro, I guess in this case…) for their existing debt.

Markets had expected a junior debt holders to take a hit, so reaction may be modest. If senior debt holders take haircuts, the reaction will be much more negative because the senior debt is backed by the Irish government. The notional amount is pretty small, at EUR 1.6 bln.

October 21, 2010 at 15:38 GMT

cordially,
Scofflaw

fred252

Scofflaw wrote: »

Er, no, they certainly haven't been:

cordially,
Scofflaw

were these junior bond holders paid in full up until Oct 2010? surely they should have been taking discounts well before then?

so its only the senior bond holders that the EU wouldn't countenance taking a hit?

beeftotheheels

fred252 wrote: »

so its only the senior bond holders that the EU wouldn't countenance taking a hit?

Pretty much, assuming that you mean ECB and not EU.

Junior is rarely if ever held by banks/ insurers/ pension funds and certainly given the credit ratings of our banks I cannot see any reputable regulated entity being able to hold it. Junior is usually held by hedge funds or other entities with a similar risk profile.

As such the contagion risk of forcing the junior holders to take a hit is way less than for the senior holders. Governments generally don't care about hedge funds (absent huge ones like LTCM ) but do care about banks, insurers and pension funds because of the perceived larger impact a failure of one of these would have on the "real economy".

Additionally we didn't guarantee the junior so normal market rules apply, once we wipe out the equity holders (as we did with Anglo) then they are next in line to be hit.

It is slightly more complex with AIB and BOI since the equity has not been wiped out so they have to negotiate with the junior holders, but there are no major policy reasons to prevent AIB and BOI getting the best deal that they possibly can.

fred252

Scofflaw wrote: »

Er, no, they certainly haven't been:



cordially,
Scofflaw

it looks like the swedes might be signing into law the principle that senior bondholder should share losses following denmark forcing losses onto senior bond holders in amagerbanken in February.

"
Sweden’s financial regulator wants to copy a bail-in model first tested in neighboring Denmark to ensure that senior bondholders share losses in insolvencies. The Stockholm-based Financial Supervisory Authority wants bank insolvency rules in Sweden and the rest of Europe to discourage risk-taking by driving home the message that creditors will no longer be bailed out by taxpayers, said Martin Andersson, the regulator’s director-general.
"

here's the link from ft alphaville: http://ftalphaville.ft.com/blog/2011/05/16/569601/how-do-you-say-bail