Issuance of BoI Shares

Today’s media coverage of the Bank of Ireland share issuance contained a number of inaccuracies, which to be fair, probably isn’t too surprising given the complexities of the issues.

On RTE’s Drivetime show, its reporter said that the share issuance occurred because the European Commission was preventing banks from paying dividends on the preference shares. Technically, this isn’t correct. The Commission is preventing banks from paying coupons on subordinated bonds. These bonds, in turn, have dividend stopper clauses and it is these clauses that prevented the payment of the cash dividends.

This is perhaps a technical distinction and it may be difficult to get across the true picture in a short space of time. More misleadingly, however, when I appeared on The Last Word today, I heard Fianna Fail TD Frank Fahey state that the Commission had merely put a hold on cash dividend payments to the government while it is assessing BoI and AIB’s restructuring plans. Fahey thus asserted that in a few months time, AIB’s business plan would have been approved and the government would be receiving the cash dividend from AIB in May.

However, as I noted last week, the coupon stopper is in place “to prevent the reduction of own funds by financial institutions which are still reliant on State aid to fulfil regulatory capital requirements.” It seems likely that AIB will still be reliant on state support in May so by that reasoning the coupon stopper is likely to still be in place.

I’ve been a little surprised that there has been no coverage of the fact that the shares were paid out despite the NTMA CEO John Corrigan and the Minister for Finance both stating in public last week that they could wait to collect the cash dividend. It appears, however, that Bank of Ireland’s own bylaws required it to pay out the shares on the deadline day (see this report by the Independent’s Emmet Oliver). It seems a little strange that Mister Corrigan and the Minister were not aware that the shares were going to be issued.

Governor Honohan’s characterisation of the whole affair as “untidy” seems about right (comments reported on the Six-One TV news). He is, of course, also correct that this payment is small beer compared with the amount of recapitalisation that the banks are going to need after the NAMA transfers. With AIB transferring €24 billion to NAMA, and BoI transferring €15.5 and mooted discounts of about a third, recapitalisation requirements will be a lot more than €250 million. But the fact that €250 million acquires 15.7% of BoI tells us that a far more serious dilution of ownership is on its way.

Cormac on famine

It is a truth universally acknowledged, that the purpose of blogs is to provide free advertising for a blogger’s own books. Let me buck the trend then, by giving a plug to Cormac’s latest offering, a great example of the power of economics (and history) to illuminate the human condition. I discussed it on last Saturday’s Off the Shelf, which you can download here.

New Yorker Profile of Paul Krugman

The profile article is here.

Honohan: “The intertwined recent experience of the Irish and UK economies”

You can read the latest speech from Governor Honohan here.

Spatial incidence of a carbon tax

The media have picked up an old paper, which was summarised in a recent report.

The Irish Independent got it right: Long-distance commuters are hit hardest by the carbon tax (no surprise there). The Irish Examiner somehow turns this into “rural Ireland”. The paper clearly shows, though, that the tax incidence is lowest in the city centres, increases in the commuter belt, and falls again in the “deep countryside”.