Senior junior bondholders' campaign against BOI offer

Scofflaw

Bank of Ireland Puts Gun to the Heads of UK Pensioners
BREAKING NEWS: The international law firm Brown Rudnick is representing holders of our bonds. Click to register with them as a bond holder.

You may have heard in the papers that that Bank of Ireland is trying to make profits by offering to buy back savings bonds (PIBS) originally issued by the Bristol & West building society at a much lower than the price those savers paid. Bristol & West were bought by Bank of Ireland and Bank of Ireland. Bank of Ireland is threatening to virtually wipe out anyone who does not accept their terms. The savings bond is called Bank of Ireland 13 3/8th perpetual (ex Bristol and West).

A campaign by UK pensioners who have invested in savings bonds now owned by BOI, and subject to BOI's buyback offer of 20 cents in the euro on junior bonds.

Campaign website: http://www.protect-my-savings.co.uk/

Emotive subject, emotive language, naturally enough:

Mark Leftly: Does the Irish government feel no shame?

The Bank of Ireland must back down right now on taking pensioners' bonds

A message to the Irish government: back off, behave yourself and stop trying to raid the savings of the elderly in the UK. And do it before a skint but seriously ballsy septuagenarian gives you a deservedly good hiding in court.

More than 2,000 pensioners who invested the crumbs of their savings in bonds, known as "pibs", issued by the old Bristol & West building society face an act of corporate thievery virtually unparalleled in even these economically tumultuous times.

Link: http://www.independent.co.uk/news/business/comment/mark-leftly-does-the-irish-government-feel-no-shame-2302798.html

Possibly we're not making our case well enough out there? Who will come off worse in PR terms - BOI or us?

cordially,
Scofflaw

Sand

More than 2,000 pensioners who invested the crumbs of their savings in bonds

Ah, I see the confusion here.

When I see "invested" I presume risk is attached. Obviously in the UK, "invest" means something else.

They put their money in to get a return. They lost it. Too bad, so sad. As far as the poor UK pensioners go, ask them to pick the Irish pensioners who will go without their pensions? Or the children who will go without their special needs assistants? Once they pick them out, then they'll get their investment covered by the Irish taxpayer.

beeftotheheels

http://www.bankofireland.com/fs/doc/wysiwyg/Exchange%20Offers%20and%20Consent%20Solicitations%2008%20June%202011(2).pdf

£75m of these bonds. The UK Government needs to step in to protect their own pensioners from this.

13.375% perpetual bonds aren't junior in my book despite what the BOI docs and Independent say, they walk, look and quack like Mezz, they're higher than high risk, if the pensioners thought that they were onto a good thing, too good a thing, then caveat emptor.

Now I'm no fan of wiping out sub before wiping out regular equity (which hasn't happened in BOI (yet)) but suggesting that Government rescue equity should be wiped out before Mezz??? It's risible.

There is a risk that if the pensioners can convince the UK High Court to exercise jurisdiction on this, at this time, then they could win because the regular equity holders have not yet been wiped out, and then the rest of the junior holders (only getting 6.5% or 10% coupons) will also sue there.

But the fact that the pensioners are the test case makes it easier on one level while harder on another. BOI challenge the jurisdiction of the High Court of England and Wales to hear the case, because at this time an injunction would be the best answer for the pensioners which the UK courts cannot enforce against an Irish Bank while the Irish courts could.

So BOI should cynically argue that the pensioners should start their case in Ireland, and as a result the UK courts cannot hear the case. I think they would win on this (based on a decision I wrote a thesis arguing was wrongly decided - arguably for political reasons), if they hadn't publicly lawyered up until such time as they could only be looking for damages then I wouldn't fancy BOI's chances.

If BOI win; they bankrupt the pensioner, if they lose; they stall having to deal with the substantive matter for four or more years, building in an appeal to the European Court of Justice through the Irish Courts means probably closer to a 10 year delay.

I really cannot see a way for the pensioners to win, their pockets are just not deep enough (assuming now is not the time for BOI to use cheaper, second or third rate lawyers).

So the UK Government needs to step in and protect their own, to stop such ridiculous articles appearing in the UK press, and to stop having to deal with the fallout of the UK Courts being used to bankrupt the Irish banks which will have the greatest impact on, ehm, the UK banks!

ardmacha

Since 1996, when BOI bought Bristol & West, anyone getting 13.375% will already have received their investment twice over in interest.

later12

I say let them roast. If Albert Kempster had paid as much attention to the agreement he signed in 1991 as he does to the bargain shelves in Tesco he would have understood the risk that goes along with a PIBS or a PSB.

In fact I daresay he must have understood that there is a significant element of risk to a PIBS bond or why else did he think he was earning more than he would on redeemable indentures? Why did he think there was no recourse to the FSA Comp scheme? Bearing in mind what beeftotheheels posted, and bearing in mind that Northern Rock have previously defaulted on these instruments, I say sorry, but tough luck Albert.

The man should have opened a savings account, he could have been making 3 or 4% on his undoubtedly hard earned money, he would be sauntering your way to the checkout with Tescos finest. Instead for an extra 1 or 2 % he chose that level of risk. That was a bad decision, we have to live with our bqad decisions, as thousands of Irish pensioners know to their detriment too.

Scofflaw does have a good point about the PR of this, though. One phrase that stuck out for me was this one

http://www.independent.co.uk/news/business/news/pensioner-faces-500000-bill-to-challenge-bank-2299572.html

John Hemming, a Pibs-holder and Liberal Democrat MP, said: "The Bank of Ireland clearly doesn't care who it tramples on. It's not right."

Is he a BOI liable PIBS holder?

In case anyone has forgotten, John Hemming is the guy who outed Ryan Giggs as the holder of a superinjunction order in the Commons.

mikemac

13.375% is massive, they knew there was risk and they invested. That is a colossal interest rate, if it's too good to be true; you know the rest.....

But now the emotive language is coming out and "stop trying to raid the savings of the elderly in the UK."
You'd think pensioners in Cornwall and Yorkshire and Durham were being make homeless by the cruel Irish government.

An investment was made and it failed, burn them

later12

Just one thing to say about the stated interest of 13% or thereabouts. Itt can be helpful to look at the yield of these instruments. Some of these pibs are quite old, and many would have been bought rather expensively at market given the, er, likely longevity of the target market.

For example I might be the holder of a PIBS that pays out £5 annually. But I might have to buy that bond at market for no less that £100, which gives me a gross yield of 5%. A typical yield would have been in the region of 6% - 7% prior to the financial crisis.

Anyway here is the BKIR prospectus for these PIBSs (in PDF)

https://docs.google.com/fileview?id=0B8hzbUJuMAkqMDExNDIyM2UtZmRmYS00ZDRjLTlkMGQtNjUyYzc5M2MyODUz&hl=en&pli=1

beeftotheheels

I was assuming that these investors could not have acquired these bonds on the secondary market - had they done so they could not now argue that they didn't expect there to be a risk since the prospectus is loaded with risk. Any one who sold these bonds to a pensioner would have to expect to be sued.

I'd assumed they bought at issuance from the building soc of which they were presumably members but I could be wrong on this.

Update - Seems you are right and Mr Kempster bought in 2009 - the fool - makes him an even better test case (from the Bank's point of view) since everyone should have been aware that there was a problem with Irish banks by then. He should be suing whoever suggested he invest in toxic instruments in an Irish bank in the middle of an Irish banking crisis.

http://av.r.ftdata.co.uk/files/2011/06/BOI_BristolWest.pdf

The letter is hilarious, especially given that hedgies outnumber pensioners in the GLO.

Scofflaw

beeftotheheels wrote: »

I was assuming that these investors could not have acquired these bonds on the secondary market - had they done so they could not now argue that they didn't expect there to be a risk since the prospectus is loaded with risk. Any one who sold these bonds to a pensioner would have to expect to be sued.

I'd assumed they bought at issuance from the building soc of which they were presumably members but I could be wrong on this.

Update - Seems you are right and Mr Kempster bought in 2009 - the fool - makes him an even better test case (from the Bank's point of view) since everyone should have been aware that there was a problem with Irish banks by then. He should be suing whoever suggested he invest in toxic instruments in an Irish bank in the middle of an Irish banking crisis.

http://av.r.ftdata.co.uk/files/2011/06/BOI_BristolWest.pdf

The letter is hilarious, especially given that hedgies outnumber pensioners in the GLO.

In a sense, the whole issue is illustrative of the insanity surrounding finance in the last couple of decades. Why do pensioners hold risky assets, given the 'special circumstances' they're in? At what point did the holding of financial instruments potentially subject to several-hundred-page resolution agreements become something that was regarded as sufficiently risk-free to form part of a retail investor's portfolio?

It strikes me that while the euro is justifiably criticised for not having been created with any downside plan, it is in that sense quite representative of virtually everything financial from the last two decades.

cordially,
Scofflaw

ei.sdraob

The value of your investment can go down as well as up.

I presume they seen the above line before deciding to "invest" :rolleyes:

Chuck Stone

So it's UK pensioners or Irish children?

Tough on the pensioners.

beeftotheheels

http://www.bankofireland.com/fs/doc/wysiwyg/TerminationofOfferfor75,000,00013_375percent.pdf

Termination of Offers in respect of the £75,000,000 13.375 per cent. Unsecured Perpetual Subordinated Bonds

The Bank has decided and hereby announces that the Exchange Offers in respect of the £75,000,000 13.375 per cent. Unsecured Perpetual Subordinated Bonds are terminated with immediate effect. Any 13.375 per cent. Unsecured Perpetual Subordinated Bonds already tendered in the Exchange Offers will be returned to the holders by the Registrar.

Procedural difficulties due to the bonds being held in certificated form outside the clearing system apparently!

Sand

Sand wrote: »

Ah, I see the confusion here.

When I see "invested" I presume risk is attached. Obviously in the UK, "invest" means something else.

They put their money in to get a return. They lost it. Too bad, so sad. As far as the poor UK pensioners go, ask them to pick the Irish pensioners who will go without their pensions? Or the children who will go without their special needs assistants? Once they pick them out, then they'll get their investment covered by the Irish taxpayer.

Scofflaw wrote: »

Why do pensioners hold risky assets, given the 'special circumstances' they're in?

^ These two posts sum it up for me really.

beeftotheheels

bluewolf wrote: »

^ These two posts sum it up for me really.

The problem for original holders is that they bought these instruments issued by a mutual building society of which they were members and the coupon was not high back in the day - the Bank of England interest rate in 1991 was over 12%.

So these instruments were not necessarily unsuitable at sale, they became unsuitable, but weren't redeemed by the bank for some unfathomable reason so I have some sympathy for original holders. I have none for the likes of Mr Kempster who bought in 2009 when it was blindingly obvious that they were high risk sub/ mezz.

What is really worrying me now is how on earth the Bank can get a SLO in respect of the rest of the sub while leaving this toxic mezz outstanding - it just has to be fraught with challenges and I wonder if the whole restructuring will have to be pulled until a new offer can be made to the PIBS holders.

If I was holding 6.5% sub which I was happy to exchange for equity under threat of getting €0.01 in the euro I'd be pretty p!$$ed off that the PIBS holders weren't subject to the same threat on the same terms even though there are procedural difficulties treating retail the same as institutional investors. The Bank should have thought this through at the outset since they should have realized the amount of retail holding certificated PIBS.

beeftotheheels

Another interesting aspect to this is that the PIBS were issued to shore up the balance sheets of the UK building societies after a property crash and were advertised at retail investors as a way of getting retail cash locked into the building societies.

So, if we start clawing our way out of this mess and get to the point of weaning our banks off taxpayer funding, something like PIBS might have been an option. But by burning the PIBS as we are presumably still set to do, we deny ourselves the ability to sell the banks back to the people.

So the cash being hoarded by individuals remains out of the grasp of the Irish banks, and the burning of retail investors, albeit foreign ones, exacerbates the problem.

Hhhmmm, the issue with moral hazard v contagion.

Scofflaw

beeftotheheels wrote: »

http://www.bankofireland.com/fs/doc/wysiwyg/TerminationofOfferfor75,000,00013_375percent.pdf

Procedural difficulties due to the bonds being held in certificated form outside the clearing system apparently!

It looks to me as if they're trying to avoid legal challenge to the rest of the restructuring by highlighting the unique nature of the issues in this case, and by saying that they will make another exchange offer:

In order to give holders of the £75,000,000 13.375 per cent. Unsecured Perpetual Subordinated Bonds who had been considering offering their 13.375 per cent. Unsecured Perpetual Subordinated Bonds for exchange another opportunity to offer their 13.375 per cent. Unsecured Perpetual Subordinated Bonds for exchange, the Bank currently intends to instigate a new offer to holders of the £75,000,000 13.375 per cent. Unsecured Perpetual Subordinated Bonds at a future date. In so doing, the Bank will seek to address the unique difficulties that have been highlighted to the Bank to date with regard to participation in the terminated Offers by the holders of the £75,000,000 13.375 per cent. Unsecured Perpetual Subordinated Bonds.

That says "we're not not including these bonds in principle, we will include them in the restructuring process eventually, but there are unique and practical issues involved here which make the current exchange offer unworkable"...so feck off with your claim that your exchange offer should also be withdrawn.

cordially,
Scofflaw

beeftotheheels

Scofflaw wrote: »

It looks to me as if they're trying to avoid legal challenge to the rest of the restructuring by highlighting the unique nature of the issues in this case, and by saying that they will make another exchange offer:



That says "we're not not including these bonds in principle, we will include them in the restructuring process eventually, but there are unique and practical issues involved here which make the current exchange offer unworkable"...so feck off with your claim that your exchange offer should also be withdrawn.

cordially,
Scofflaw

I have to say that until such time as a hard and fast offer is on the table with an SLO threat hanging over it I would challenge any other SLO.

While there are clearly issues around the timetable and procedures for retail investors, the low take up by the PIBS holders is not necessarily evidence of insurmountable procedural issues but could be seen as evidence of them playing a game of chicken - mercifully there is no gloating as yet on their website but we cannot tell how many of them are signed up with Brown Rudnick.

Presumably BOI will look for a way to offer the PIBS holders equity pari passu the other sub holders which will be messy especially given that the PIBS are trading at a discount to the conversion price. But there remains a significant risk that this will not be possible which means that the rest of the junior holders should hit the courts since they have no guarantee at this time that the PIBS holders won't get a better deal rather than the same deal with a longer timeline. The mind boggles as to why they withdrew the deal without replacing it - surely they have identified a specific flaw in the offer for retail investors and as such they could make a replacement offer which does not have that flaw.

Furthermore if they cannot get the recap away how will they get the rights issue away?

BOI should have realized that they had a class of debt which was disproportionately held by retail investors and so set a timetable which retail investors could comply with and/ or not tried to make it institutional investors only. Typical bl00dy Irish lack of attention to detail while engaged in high stakes poker.

Scofflaw

beeftotheheels wrote:

I have to say that until such time as a hard and fast offer is on the table with an SLO threat hanging over it I would challenge any other SLO.

While there are clearly issues around the timetable and procedures for retail investors, the low take up by the PIBS holders is not necessarily evidence of insurmountable procedural issues but could be seen as evidence of them playing a game of chicken - mercifully there is no gloating as yet on their website but we cannot tell how many of them are signed up with Brown Rudnick.

Presumably BOI will look for a way to offer the PIBS holders equity pari passu the other sub holders which will be messy especially given that the PIBS are trading at a discount to the conversion price. But there remains a significant risk that this will not be possible which means that the rest of the junior holders should hit the courts since they have no guarantee at this time that the PIBS holders won't get a better deal rather than the same deal with a longer timeline. The mind boggles as to why they withdrew the deal without replacing it - surely they have identified a specific flaw in the offer for retail investors and as such they could make a replacement offer which does not have that flaw.

Sure - attempts to inoculate oneself against legal challenge are commonly necessary, but rarely sufficient.

BOI should have realized that they had a class of debt which was disproportionately held by retail investors and so set a timetable which retail investors could comply with and/ or not tried to make it institutional investors only. Typical bl00dy Irish lack of attention to detail while engaged in high stakes poker.

"Attention to detail"? Goodness, whatever will you demand next? Planning!?

amused,
Scofflaw

sarumite

B of I withdraws UK bond swap offer


BANK OF Ireland has withdrawn a proposal to force heavy losses on a group of investors in one of the bank’s subordinated bonds ahead of the start of a legal action by a British pensioner in London today.
The bank cited administrative difficulties for the decision to terminate the offer on the £75 million (€84 million) bond sold by Bristol and West Building Society which Bank of Ireland acquired in 1997.


http://www.irishtimes.com/newspaper/finance/2011/0629/1224299730651.html

beeftotheheels

http://www.ft.com/intl/cms/s/0/35086b08-a167-11e0-baa8-00144feabdc0.html#axzz1QPzlx5Ou

Lovely summary of the issue in the FT today by Jonathan Gutherie where he equates the PIBS to broken ATMs resulting in someone else's cash filling the pensioners pockets - that someone else being the Irish taxpayer one assumes.

_Kaiser_

I didn't even have to read to the end of thread before I knew that this wouldn't happen - because sure here in Ireland we (the taxpayer that is) will cover EVERYONE'S gambling losses.

Maybe there's a tourism opportunity there with that new Casino - come to Vegas Ireland.. where you'll never lose! :mad:

Scofflaw

Kaiser2000 wrote: »

I didn't even have to read to the end of thread before I knew that this wouldn't happen - because sure here in Ireland we (the taxpayer that is) will cover EVERYONE'S gambling losses.

Maybe there's a tourism opportunity there with that new Casino - come to Vegas Ireland.. where you'll never lose! :mad:

To be fair to BOI, the PR of the situation make it a virtually unavoidable move. They're still a going concern, and they do a lot of profitable retail business in the UK. At a time when it's pretty easy to get people whipped up against banks, they can't really afford the kind of PR mess that even at the best of times would shove their share prices sharply south and lose them trade. An issue like this would easily cost more than the c. €60m in potential savings.

I don't believe for a moment that the bank has any other qualms about burning the pensioners, but the reason there is no new exchange offer on the table is because the PR of this situation is so stark that there is no value at all for the bank in keeping any part of the situation in the public eye.

So, people with a profitable investment have again been saved from the risks the investment carries (I'm still not going to call them gamblers, apart from those like Kempster), courtesy of the Irish taxpayer - and again, it's because had the bank gone ahead with this, it's likely the Irish taxpayer would have been worse off, not better. There ain't no justice.

cordially,
Scofflaw

ball bearings

The thought unanimity on this board is very impressive. I wonder whether any of you has stopped to ask himself whether a) the tender offer from Bank of Ireland is lawful b) fair c) saves the Irish tax payer money d) benefits any of you in any way because... none is actually the case. As for Mr Kempster buying this bond in 2009, I suppose he bought after the first bank bailout when both the Irish government and the Irish central bank have told anyone who would listen that BoI was adequately capitalized now and all it's obligations were safe. One could say, therefore, that it was Mr Kempster's mistake to trust official pronouncements from the Irish government. I don't think anyone in Ireland is entitled to say to him today "You should have known".

beeftotheheels

ball bearings wrote: »

The thought unanimity on this board is very impressive. I wonder whether any of you has stopped to ask himself whether

a) the tender offer from Bank of Ireland is lawful

Obviously there are issues with the way they did it, and had you read my posts you would have noted I took issue with trying to wipe out junior before the bank is in majority state ownership but since it is likely that the bank will be in majority State ownership in the coming weeks and months that is a technicality one might get over.

ball bearings wrote: »

b) fair

Did you really want to bring fairness up? We, the Irish people, will have to pay a stupidly high coupon on toxic mezz to UK pensioners, so no, leaving these notes outstanding or buying them back for anything more than their open market value would not be fair.

ball bearings wrote: »

c) saves the Irish tax payer money

Since we are underwriting the rights issue, after which we will own the majority of the Bank of Ireland, yes, getting rid of this mezz would save us money. The much bigger issue is whether this messing about by the PIBS holders can mess up the SLO for the other junior holders which should have saved us even more money.

ball bearings wrote: »

d) benefits any of you in any way because

See above, it would save us money and reduce the outgoings of a bank which we will own in a couple of weeks time

ball bearings wrote: »

As for Mr Kempster buying this bond in 2009, I suppose he bought after the first bank bailout when both the Irish government and the Irish central bank have told anyone who would listen that BoI was adequately capitalized now and all it's obligations were safe. One could say, therefore, that it was Mr Kempster's mistake to trust official pronouncements from the Irish government. I don't think anyone in Ireland is entitled to say to him today "You should have known".

I really like tuna sandwiches but that does not mean that I would invest my life savings in a whole bluefin tuna since that would be stupid.

1. Investing ones entire life savings in any one investment is a bad idea
2. This is especially the case if one is elderly and has a low risk profile
3. By 2009 all was not well in the Irish banks, had he wanted to believe in the Irish government guarantee he could have put his money on deposit with BOI like many Irish pensioners, but instead he bought unguaranteed mezz for a higher yield
4. There is a saying that in investment terms one should never try to catch a falling knife, what Mr Kempster tried to catch was a knife that had been dropped from an plane at 30,000m and was hurtling towards the ground at a speed of several hundred km per hour. The Irish Government didn't even guarantee this mezz, how could anyone have thought it sound?

So yes, we are fully entitled to question his acquisition of this most unsuitable debt. However, if you read my posts you will also note that I questioned who the hell allowed a pensioner to invest his life savings in Irish bank mezz during an Irish banking crisis. Whoever sold it to him probably has a case to answer.

Liam Byrne

What's a 'mezz' ? Is it a financial term?

mikemac

mezz is mezzanine capital.
To put it simply it's buying debt, you get an interest rate. You are more secure then common shares but you are not as secure as senior,secure debt

Because it's less secure, the issuer has to pay a higher rate to make it attractive

It's not guaranteed and investors can be burned. Not something a pensioner should be going near despite the attractive rate of over 13%.

Lot more complicated then this but it's a summary

melekalikimaka

in fairness, it was irelands fault to money vanished, nightmare to try burn them sorts anyway, bondholders no longer have the mental image of fat cats with horns

beeftotheheels

mikemac wrote: »

mezz is mezzanine capital.
To put it simply it's buying debt, you get an interest rate. You are more secure then common shares but you are not as secure as senior,secure debt

Because it's less secure, the issuer has to pay a higher rate to make it attractive

It's not guaranteed and investors can be burned. Not something a pensioner should be going near despite the attractive rate of over 13%.

Lot more complicated then this but it's a summary

@ Liam Byrne It is actually the lowest form of debt - if a company was a person who wanted to borrow a lot they would have

a) a Mortgage (secured senior debt backed by an asset)
b) an overdraft (unsecured senior debt but quite likely to be paid off since the bank can always take first call on any cash going through the account)
c) a credit card - higher interest rate as less chance it will get paid than the overdraft - junior debt
d) when they have maxed out all the above a loan from a loan shark with a sky high interest rate and no security - this is the personal equivalent of mezz

Technically the PIBS were not issued as mezz because they were issued at a time when 13.375% wasn't a sky high interest rate (12% was the Bank of England rate) but as time passed and interest rates fell they began to look more and more like mezz, and they were always junior and unsecured.

So when I refer to the PIBS as mezz it is actually intended as a term of abuse towards that debt, I'm equating it with loan shark financing which it technically was not in the hands of the original lenders, the original lenders simply invested in their building societies to help them get out of the last recession on reasonably conservative terms. The passage of time however, has moved things massively in their favour.

mikemac

You explained it better

ball bearings

beef

a) Legality

Your argument does not change the fact that the offer is illegal *today; by supporting it, you are giving express permission to your government to act illegally as long as what they do is popular. This is not how a republic is supposed to work and is a very dangerous precedent which may one day turn around and hurt you personally. You may remember it when it is your turn to be treated illegally, but it is better to speak up now.

b) Fairness

"Did you really want to bring fairness up?"

Yes. You may know that these PIBS were originally sold to savers of a local savings-and-loan institution in the Bristol area, UK. They are still mostly held by the original investors -- and in certificated form. (I know this for a fact because I have seen the register).

In 1997 BoI bought Bristol and West and was substituted as an issuer of this instrument *without the permission of the PIBS holders, or even as much as informing them. (It was done by a court order). At the time of the substitution certain legal requirements were not met (there were in fact mistakes in the court order): for instance, Bristol and West (which still exists as a separate entity and is well capitalized -- their subs are not part of the tender offer) has failed to provide a guarantee for these bonds in the event of BOI nonpayment, even though they were required to do so by the original terms of the PIBS. The issuer was named as "Bank of Ireland UK Branch", even though no such legal entity has a right to issue bonds. And so forth.

In sum, it would appear that most of the present owners of these PIBS have not invested in Bank of Ireland, have never had the wish to invest in Bank of Ireland, and have in fact had their investments... "kidnapped".

Last month, under the terms of the tender, some of the original holders of these PIBS suddenly discovered to their dismay that they have invested in a risky Irish bank. But only some: because of the way the offer was structured many, perhaps most, would only first find out about it only after their bonds have been extinguished -- when their November check did not arrive in the mail. These people would never have even heard of the offer!

So, yes, I would say there are pretty serious issues of fairness here.

Like many Irish you probably feel that Ireland has been treated unfairly -- which may or may not be the case --- and imagine this means you can in turn treat others unfairly -- which definitely is not! I sympathize with the lot of the Irish tax payers and think it is stupid of the Germans to charge you the interest rate they are charging you, but I don't see why this should give Bank of Ireland to act the way it was acting. (Poland was invaded by Germany in 1939. Does it make it fair for Polish youths to rob Irish tourists?)

Luckily, the holders of the 13.375 have been able to convince BOI that the offer was entirely inappropriate to this particular issue and the bank has now agreed to review the matter. It is regrettable that it required a court action to force the bank to do what they -- as an institution of public trust with a large retail operation in the UK, to boot -- should have done from the outset, but they have done it in the end and kudos to them for correcting a mistake where a mistake was made.

c + d) Money saving

As you probably know, an offer has been made by some LT2 holders (not the holders of the 13.375s, obviously) to recapitalize the bank entirely on their own money, without any need for further capital from the state as long as the subs were not haircut. The state has rejected this offer, preferring to a) haircut the bondhodlers, then b) inject 1.6 bn of taxpayer money into the bank. How is this decision saving you money?

...

Finally, I should add an important point: the fact that the entire tender for BOI sub debt (not just the 13.375s) is illegal (though it didn't need to be: the government could have simply written a law allowing it to go forward, why didn't they?); and that it upends creditor hierarchy (applying losses to subs without first extinguishing common -- which is universal practice also enshrined in law); has seriously undermined investor confidence in all things Irish. After all, if it is possible in Ireland to wipe out subs without even touching common, then what security is there in holding even covered bonds (the most senior of seniors)? Only yesterday a very large fund manager said to me: "covered bonds of Irish banks are ruled by Irish law and therefore I will not touch them because Irish law does not offer adequate protection for property rights" Whatever you think of large investment funds, think about what this means for Ireland.

Since this government has taken power and set about haricutting the subs in the way in which it is doing it, yield on Irish sovereign debt has shot up from 8% to 12% (i.e. the debt has fallen in value by about 30%). Since Ireland is fully funded by the bail out through 2012, this should not have happened just because Greece is basket-case. But it did happen. Why? I think the answer is that investors don't trust this government to keep its promises. I agree that the terms of the bailout are onerous. But it seems that the only hope of getting better terms is to get rid of it entirely. As long as Ireland runs a deficit, the only way to do this is to return to the markets. You can only return to the markets if international investors have the confidence that their investments are protected by law.

Can you see the point?

ballsy

ball bearings

mikemac

"It's not guaranteed and investors can be burned. Not something a pensioner should be going near despite the attractive rate of over 13%."

As you know, at the time when these were issued (1991), general interest rates in the UK were about 11%, so this even wasn't a terribly attractive rate then!

These issues were sold as PIBS ('permanent interest bearing shares') by a UK building society ("savings-and-loans", "credit-union" -- I am not sure what the Irish equivalent term is) to its unsophisticated retail depositors. You are probably right in suggesting that these instruments probably should not have been sold the way they were; a violation of UK security laws may have been committed when they were first sold. (In which case, as a successor institution, BOI bears legal responsibility for any irregularities of this deal).

A violation of UK security laws definitely *was committed when the issuer of these bonds was transferred from B+W to BOI without as much as notifying the holders.

The point I am trying to make here is that the holders of these instruments are not some sort of fast-money shadowy hedge-funds operating out of some tax haven and out to suck Irish tax payers' blood but a bunch of septuagenarians who -- but for BOI's decision to pull this bond out of the tender -- would have been dispossessed and mostly wouldn't even know what hit them.

ball bearings

beefy:

"Whoever sold it to him probably has a case to answer. "

see my reply to mikemac:

the party legally responsible for misselling these to the public would be the successor of B+W... which is BOI!

beeftotheheels

I was going to respond but I found the arguments too long winded and fundamentally flawed.

1. In terms of seniority lets think it through. If Ireland were to stop standing behind BOI it would be insolvent. What would the PIBS holders get in the liquidation? Tuppance ha'penny.

That we have chosen to stand behind the bank, for the purposes of protecting our financial system, does not change that the PIBS holders should get tuppance ha'penny. To allege otherwise, and to be fair, to allege otherwise based on the ignorance of a particular investor class, is just wrong.

So we're protecting the bank, and the bank was offering the PIBS holder more than the tuppance ha'penny to which they are entitled, and this makes us the bad guys??? Once we are at the point of using our cash to keep the bank standing, we do get to decide what that cash should, and should not, be spent on.

2. In terms of the investor offer an Irish PLC cannot issue shares for non-cash consideration in excess of the market value of that consideration. This is why the junior holder's offer to convert at par could not wash. BOI could not have done it, a point missed by the junior bondholders. Furthermore, I am not remotely convinced that the type of investor who invests in junior debt of failed banks is really going to be around to inject more capital if it is needed. So the Irish taxpayer should allow the debt funds dilute our holding but still be prepared to invest more capital should the bank need it? Do you see how daft this logic is? Because unless you believe that BOI is out of the woods, that requires us to maintain risk while allowing our asset which should represent that risk, be devalued. No investor would agree to these terms.

3. Leave Goodwin's law alone.

4. The issue of the SLOs is why investors have no confidence in Irish banks? Not the fact that they're practically bankrupt and we as a nation are in receivership? But the treatment of the junior holders under an SLO is the problem? These contracts are verging on being frustrated when the counter party is a bank which would be insolvent but for the actions of the Irish Government pumping our taxes into it - and they are justiciable in England and Wales by the way, and I fully expect the UK courts to rule in our favor on this.

beeftotheheels

ball bearings wrote: »

These issues were sold as PIBS ('permanent interest bearing shares') by a UK building society ("savings-and-loans", "credit-union" -- I am not sure what the Irish equivalent term is) to its unsophisticated retail depositors. You are probably right in suggesting that these instruments probably should not have been sold the way they were; a violation of UK security laws may have been committed when they were first sold. (In which case, as a successor institution, BOI bears legal responsibility for any irregularities of this deal).

A violation of UK security laws definitely *was committed when the issuer of these bonds was transferred from B+W to BOI without as much as notifying the holders.

Lets not try to pretend that investor protection laws in 1991 were what they are now. These bonds were perfectly legal when issued and marketed to retail investors, similar instruments were used by many building societies to rebuild their balance sheets post property crash. I simply questioned whether it was legal for whom so ever suggested/ facilitated Mr Kempster buying these bonds in 2008???

Furthermore, we have building societies/ former building societies and INBS stands out as perhaps the most mismanaged financial institution in Ireland, although Northern Rock (another former building society) in the UK is an equally good example. So claiming that because they were issued by a building society and therefore should be safe as houses just doesn't fly.

ball bearings wrote: »

The point I am trying to make here is that the holders of these instruments are not some sort of fast-money shadowy hedge-funds operating out of some tax haven and out to suck Irish tax payers' blood but a bunch of septuagenarians who -- but for BOI's decision to pull this bond out of the tender -- would have been dispossessed and mostly wouldn't even know what hit them.

Who cares? All creditors should be afforded equal protection or asked equally to share in the burden. Suggesting one group of creditors should be treated differently because of their ignorance/ stupidity is really pretty offensive to me, although I appreciate it seems to play well to the masses in the British press.

ball bearings

"I fully expect the UK courts to rule in our favor on this." The Irish government doesn't -- they have settled out of court every case so far.

ball bearings

'The issue of the SLOs is why investors have no confidence in Irish banks?'

Beefy, you're either misreading me or misquoting me. Investors have no confidence in things Irish because the way the haircut is carried out -- unlawfully -- has shaken our confidence in property rights in your republic. Since you have written this the tender on BOI has closed and the Irish sovereign bond 2020... has fallen another 7%. Had it been done legally and had it actually saved you money, as you suppose it does, the sovereign should have gone up. It didn't.

There is no reason at all to think that sub debt in BOI is worth two pence, as you suggest. Have you seen the accounts? There is plenty of equity to cover the subs and leave something for the shareholders.

The bank isn't supported by taxpayers money but liquidity from the ECB.

The only so called taxpayer money in the bank right now has been an 'investment' by NPRF ('investment', remember?). Now that NPRF's investment has gone sour, we are told it was not an investment at all, but a bailout. (NPRF would like to have it both ways, I suppose). Treating BOI subs decently -- exchanging debt into equity at par -- like Citibank did -- would dilute that investment. This, I believe is an important reason for haircutting the BOI subs: the NPRF is unable to deal with the fact that they have made a bad investment. (Which, if you think about it, means that Irish retirees are more important than British retirees).

I can see arguments won't work here: it is more important to you to haircut somebody -- anybody -- than to do it legally, or for it to serve some purpose, or for the haircutting to make financial or economic sense. (Let's not mention fairness if you find that long-winded). Ask yourself then: does it give you... pleasure to hear that someone is being illegally dispossessed? I suppose it must, and Noonan knows this, and this is the principal reason why he is doing this.

All I wanted to do here was to show you the reasons why investors find Noonan's actions with respect to BOI subs repellent. It's difficult to discuss these matters briefly because issues are complex. Yet, I find that any serious discussion of this matter on Irish sites is almost immediately short-circuited by slogans -- as indeed you just did. I leave you to trade slogans with your friends, then.

beeftotheheels

ball bearings wrote: »

'The issue of the SLOs is why investors have no confidence in Irish banks?'

Beefy, you're either misreading me or misquoting me. Investors have no confidence in things Irish because the way the haircut is carried out -- unlawfully -- has shaken our confidence in property rights in your republic. Since you have written this the tender on BOI has closed and the Irish sovereign bond 2020... has fallen another 7%. Had it been done legally and had it actually saved you money, as you suppose it does, the sovereign should have gone up. It didn't.

Because this would have nothing to do with d'Adriatic and everything to do with SLOs? It is a real shame that the markets are pricing a dislike for pasta into the Italian yields at the moment.

There is no reason at all to think that sub debt in BOI is worth two pence, as you suggest. Have you seen the accounts? There is plenty of equity to cover the subs and leave something for the shareholders.

The bank isn't supported by taxpayers money but liquidity from the ECB.

Ah, right, because you've realised the other arguments are meaningless so now you're going to base arguments on the fact that the ECB, as well as the Irish taxpayer is what is keeping BOI open for business.

The only so called taxpayer money in the bank right now has been an 'investment' by NPRF ('investment', remember?). Now that NPRF's investment has gone sour, we are told it was not an investment at all, but a bailout. (NPRF would like to have it both ways, I suppose). Treating BOI subs decently -- exchanging debt into equity at par -- like Citibank did -- would dilute that investment. This, I believe is an important reason for haircutting the BOI subs: the NPRF is unable to deal with the fact that they have made a bad investment. (Which, if you think about it, means that Irish retirees are more important than British retirees).

Yes, because the NPRF aka the Irish taxpayer, sat there and thought, wouldn't it be a great idea to invest in BOI. Nothing whatsoever to do with keeping a bank of systemic importance open for business, a purely speculative investment. I've already explained why an Irish bank cannot exchange debt for equity at par (which is nothing to do with fairness and everything to do with company law), and this also ignores that Irish banks are in a much more precarious position than even Citi was so we have to be prepared to inject even more equity.

I can see arguments won't work here: it is more important to you to haircut somebody -- anybody -- than to do it legally, or for it to serve some purpose, or for the haircutting to make financial or economic sense. (Let's not mention fairness if you find that long-winded). Ask yourself then: does it give you... pleasure to hear that someone is being illegally dispossessed? I suppose it must, and Noonan knows this, and this is the principal reason why he is doing this.

All I wanted to do here was to show you the reasons why investors find Noonan's actions with respect to BOI subs repellent. It's difficult to discuss these matters briefly because issues are complex. Yet, I find that any serious discussion of this matter on Irish sites is almost immediately short-circuited by slogans -- as indeed you just did. I leave you to trade slogans with your friends, then.

No, if you had any arguments as to why, the Irish taxpayer should protect UK pensioners other than the stupidity of said pensioners then I would be all ears. But you don't. You insist on missing the point that Irish taxpayers are what is keeping BOI open, you insist on missing the point that the NPRF "investment" was a bailout (despite buckets of evidence to the contrary) and as such cannot be treated like traditional equity in terms of the protection of sub holders. Sub holders cannot be protected at the expense of taxpayers rescue equity, regardless of their intelligence.

BTW, settling a case does not necessarily mean that one expects to lose it, although given the timeline I would think that there was an issue for retail investors. Settling can take into account the negative PR from winning given that the FT understands why the PIBS should be burnt, the Daily Mail (and Indo etc) appear not to.

ps Stop abbreviating my username to Beefy, it is just rude (and misses the joke entirely), if you cannot type beeftotheheels then beef is fine, not Beefy.