A right issue is a offer of new shares to all existing shareholders on the register on a a given day. Usually it is in proportion to their existing holding i.e 1 new share for each share they hold at the given day. In addition it is usually priced at a discount to entice shareholder to participate.

THe two placings done this week at 1.53 for the instutional share holders and 1.80 to the NPRF were to get them onto the share register to qualify for the rights. This is somewhat contraversial aspect in that it dilutes existing shareholders. As of last Friday there were about 1.1bn shares qualified for the rights issue but after the placings the number of shares rises to 2bn.

The rights issue will be done at a discount to the existing share price-probably around 75p and there will be something like 1 new shares issued for each existing share. It could be 1.2.

In theory the shares should trade down to the weigthted average of say 1.50 +0.75 on completion. Say 1.125 or so. From then on they trade up and or down in accordance with the markets assessment of the value of the shares.

All the capital will be lost until a few years before the turnaround, hence the importance, JOSEPH, of knowing when that will be. I naively believe that we can set out some clues to that.

They had to “sell” the prefs to buy the shares or stump up cash from the NPRF. You can value the prefs using Bloomberg and because the coupon is too low, the stock would be trading well below par. So in effect, the NPRF is paying over the odds for the equity and receiving over the odds for the prefs. This part of the transaction was done over the odds to conceal the fact that the origianal prefs were a dumb deal & shortchanged the taxpayer.

unless they’re the exception that proves the rule.

Besides the basis for the warrants is:
“Following this recapitalisation, the State will not hold ordinary shares in either bank (other than existing NPRF holdings), but it will have an option to buy shares in five years time at a predetermined strike price, thus providing the State with the potential for a significant return. ”
Clearly this has all been thrown out the window anyway!

“BTW, exiting their 8% prefs at 100 is a great piece of business.”
Well, not really. They have no requirement to sell, indeed, they are holding them at par, so selling at less will crystallise a loss. As it is, they are sitting on a 27 mn euro loss today having bought at 1.80.

“The only way they and take up 685m of a 1.8bn right issue is by buying extra shares. This they are doing in a placing.”
But why were the private capital charged 1.53 (a 15% discount) for the 500 mn they bought of the placement? This rather gives the lie to the idea that the preference shares paying par was a good deal. Considering the government preference shares were paying in either equity or at 8%, I don’t see any reason they’d be trading about 80. There isn’t a market in them anyway, so it is supposition, but logically speaking they are a no lose bet (equity to the value of cash or cash).

Their pre rights share holding was 16%. Thus they could only take up 16% of the rights issue. The only way they and take up 685m of a 1.8bn right issue is by buying extra shares. This they are doing in a placing.

BTW, exiting their 8% prefs at 100 is a great piece of business. If you were to sell this in an open market transaction, I doubt whether you would get more than 80.

They are getting fullmarket value for the warrants. I am not a legal expert, but I don’t see how having a warrant exercisable in 5 years time, gives you the right to participate in a rights issue now.

Then they are buying into the discounted rights issue with 700 mn of preference shares to prevent that 1 bn and their previous (preference dividend) shareholding from being diluted. What would the shareholding have been if there had been no first round conversion and all 1.7 bn had bought at the discounted rights price?

The selling of the warrants also has ’sweetheart’ written all over it.

And I never believe “this time it’s different”

wow thats long and willtake time for me to understand and digest.

Where is the evidence that the taxpayer has been stiffed this time on BOI?
Sure we were stiffed on Anglo and stiffed on the Prefs but not this time.

Just that the state is not artificially disadvantaged by the pursuit of a failed and discredited model of ownership - that majority private sector ownership is the best thing and that limiting the ownership portion of the state and paying back state preference shares are desirable explicit objects.

I understand the need both to increase the core equity ratio and to anticipate Basel III, but there are other methods to reduce preference share-holdings; contingent convertibles, even taken to Rabo’s extreme are one such method.

Most of all, I would like to see an end to the spoofing that BoI is somehow ‘fine’ because the taxpayer has been stiffed. That all will be okay both with the institution and the credit market in Ireland. That all this is going to end up costing us nothing and might even turn a handy profit for the taxpayer har har. It is spoken as lies except where it is being spoken as ignorance.

Let me get this straight. You want the govt to get a return on its money as implied by “fair whack”. This means to me that depsoit rates which are already 1% above Euribor have to come down for certain.
It also means lending rates have to rise. Of course the banks will have to be careful about how they do this for fear of tipping more people/business over the edge.

@ D_E
I do not follow your logic. Post the recap BOI has sufficient equity capital to pass the FR stress test. It is also under an edict from the EU to shrink its loan book in the UK and divest ICs. Therefore, its loan book will shrink. So to generate interest income and cover its costs, it is gong to have to expand its Irish loan book at highwer margins too… somehow. Otherwise how can it turn a profit.

http://www.irishtimes.com/newspaper/breaking/2010/0427/breaking48.html

I recall the first time I ever went water ski-ing. After getting up first time and then doing a couple of laps around an island just off the beach, I started thinking how ‘easy’ this is…….. about four seconds later I discovered just how hard water is when you hit it at 40mph. Ouch!

It’s not pride that comes before a fall, it’s a lack of vigilance.

Indo is reporting €2.8bn, surely that is a mistake?

This is fantastical as it implied another €1.75+bn impairment provision is coming to BoI courtesy of its NAMA portfolio.

At December 31st 2009, loans for NAMA €12.24bn, provision €2.78bn, net €9.46bn. If they only get 63% of the value that would be net €7.71bn. Implies total provision of €4.53bn. So an incremental €1.75bn. On top of this would be write-downs from related derivatives.

But the analysts at banks/brokers are likely to be all geared up to do the placing/ rights issue and may forget to mention this (or have already modeled it).

@D_E said:
“This is probably the worst part of the deal structure.
BOI will do everything possible in order to repay the preference shares.
That means it will lend next nothing over the next few years in order to rebuild its capital.

The complete opposite of the stated raison d’etre for the bank recapitalization.”
Exactly my concern.

I hold no candle for nationalisation, pre/postemptively or whatever, but there are two things I want to see:
1. The state getting a fair whack for saving the bank.
2. The bank being in a position to resume normal business.

What I fear is that the bank will increase mortgages and reduce deposit rates to enable it to accumulate cash to repay the preference shares. Now what was that I heard on the news this morning?

This is probably the worst part of the deal structure.
BOI will do everything possible in order to repay the preference shares.
That means it will lend next nothing over the next few years in order to rebuild its capital.

The complete opposite of the stated raison d’etre for the bank recapitalization.

Gold in Sacks is not the only one ripping off their customers. The NYSE churn of bank shares is colossal and reflects manipulation by the PPT. The Presidents Plunge protection team. Tarp money being used for that.

It’s 6am and I can’t be bothered to comment on this drivel. I must go out and see if I can get into more debt today.

Didn’t you know? We have already ‘turned the corner and the worst is behind us’ ?? BL said so in the December budget.

Doctrinaire capitalist idiots fuelled the banking bubble in Ireland.

There appear to be some on this blog. They will find adapting difficult.

The effort should be to identify where the real economy will settle, now that the inflating factors aside from NAMA, have ceased. When will we know that recovery is truly “just around the corner”. The Japanese are struggling and are now into 200% GDP public debt. They still have no hope! Are we to suffer the same fate? NAMA not selling land suggests, yes. NAMA selling land suggests no. The timing is important. The longer it takes the more it costs the taxpayer. The Japanese banks did not sell off their non-performing securities.

As Iceland had no real stake in the systemic importance of “their” (pirate, parasite) banks, they may have suffered less than Ireland, except there is now a 5,000,000,000 entry to EU fee, payable to England and Netherlands……. All they lost was the potential dividends, salaries etc all of which were very recent. Ireland’s bubble banks were sucking out our juices for decades.

Thanks for posting those links, Frau Merkel speaks the truth. These statements must put a shiver up the spines of our NAMA SPV engineers and our creative accountants in the DoF with their promissory notes and Bills of exchange. Looks like Irelands national debt will hit 24% shortly. As for the stability and growth pact, yes we broke it, continue to break it and think that we should be able to masquerade and massage our figures at will. After all, we are Irish we are not serious people they should know that. Frau Merkel is a spoil sport, but somehow I think there will not be too many Germans investing in BoI especially in hindsight after the “light touch” regulation on depfa bank which cost them a mere 100bn.

Then again, was it not Von Lenihan und company that claimed that it was his officials that told Eurostat how they must treat the 4bn given to Anglo. Mein Gott, I thought he could not get any more delusional but it seems he runs Eurostat too.

Von Lenihan, will soon learn that the markets do not buy into barrister speak for very long and that you can fool most of the people all of the time but only if thy live in Ireland and their surname is not Lucy or Gurdgiev . He should also keep an eye on the German Verfassungsgericht and the four professors of the apocalypse who do not come bearing Greek gifts.

If only, our economy could run on platitudes rather than record levels of sovereign debt, if only that debt did not have to be serviced by a seriously shrunk economy and now they tell us we cannot lie with the figures. If only?

If the issue doesn’t go as planned, can/will the State step in to take stock from the underwriters?