Bank of Ireland Set for Majority State Ownership

Bank of Ireland have released details of their capital raising plans.  The fraction of government ownership of the bank will depend upon how many subordinated bondholders take equity instead of an alternative cash offer. Various scenarios are presented but it seems pretty likely that the bank will end up in majority state ownership. So we’re likely to have nationalised all our domestic banks. We await the long-predicted frogs and locusts.

14 thoughts on “Bank of Ireland Set for Majority State Ownership”

  1. loads shotgun and stacks beans.

    Serious people have warned about this. Both FG and FF warned against it. Yet lo here it is.

  2. Two state-controlled pillar banks, a recipe for healthy competition!

    What was the reason for not letting AIB go the Anglo/INBS route again? Oh right, then we wouldn’t have to shovel €13.3bn (less liability management results) into it. And we wouldn’t want to put a stop to all this shovelling…

  3. “Either way, the lowest state ownership percentage will be 63%”

    Why do you say that? If the rights issue is successful state seem willing take 10% dilution of their shareholding, under the 100% Equity take up and 100% Rights issuance take up state would be left with 26%.

    Not going to achieve either of those objectives but below story highlights appetite for further equity purchases in a rights issuance if note holders are allowed be involved. This would appear to suggest that if note holders are allowed participate in rights issuance, there could be considerable interest in equity capital investments which could avoid the 63% scenario you outline.

    http://online.wsj.com/article/SB10001424052702304392704576373391776187106.html?mod=googlenews_wsj

    Or have I misread something?

  4. FTAlphaville has covered this too, with a “last out turn off the lights” message about Irish banks.

    On the topic, I know it’s been said before, but we had effectively already done much more than merely nationalize the banks. If we had ‘just’ nationalized the banks we would not necessarily have been on the hook for all their liabilities, which we are.

    I can kinda understand the reason for that, but I’m still puzzled about the continued insistance on maintaining the banks as nominally independent for so long. As Jagdip asks, what was the reasoning behind the insistence on having privately and Irishly owned banks once we’d discovered the extent to which they were under water? Does anyone know? Did it ever make sense?

  5. @ JK

    Indeed, that sentence was a mistake. Hurriedly written post edited.

    People can pick there own likely outcome but it seems like the writing’s probably on the wall.

  6. ‘However, the Directors anticipate increased demand for lending arising 
    from economic recovery, increases in base interest rates, reduced deposit 
    pricing as a more normalised market returns and particularly reflecting 
    lower wholesale funding costs through deleveraging are all anticipated in 
    the future to be positive for the Group’s net interest margin in the period to31 December 2014’

    As we used to say down the country, ‘aye tomorrow’.

  7. @ Hugh Sheehy

    ‘ As Jagdip asks, what was the reasoning behind the insistence on having privately and Irishly owned banks once we’d discovered the extent to which they were under water? Does anyone know? Did it ever make sense?’

    D4 saw it that way. The Green Jersey myth dies hard.

  8. @ Hugh & paul

    ‘what was the reasoning behind the insistence on having privately and Irishly owned banks once we’d discovered the extent to which they were under water? Does anyone know? Did it ever make sense?’

    I always rather vaguely took it that 100% nationalisation was avoided so that the books of said banks, particularly Anglo, wouldn’t edge into the public arena and a lot of very embarrasing financial deals wouldn’t come into the open.

    What ever happened to those encrypted accounts in Anglo anyway?

  9. @ Paul quigley

    ‘However, the Directors anticipate increased demand for lending arising
    from economic recovery, increases in base interest rates, reduced deposit
    pricing as a more normalised market returns and particularly reflecting
    lower wholesale funding costs through deleveraging are all anticipated in
    the future to be positive for the Group’s net interest margin in the period to31 December 2014..

    http://www.scribd.com/doc/20986873/Adam-Tooze-The-Wages-of-Destruction-The-Making-and-Breaking-of-the-Nazi-Economy

    30. Speer lectures on the ‘armaments miracle’, June 1944

    549/806

  10. It seems the legal challenge to the BOI bond wipeout is based on the basis that the shareholders should have been wiped out first. Many here have said the same thing so it will be interesting to see if they prevail should the action go ahead. However, they seem to have left it a bit late in the day to mount such legal action.

  11. @ Karl Whelan

    Is it really in the interests of the state and the taxpayer to exclude bondholders from participating in a subsequent rights issue where close to all of the capital requirement could be injected by the note holders in exchange for equity.

    If you exclude the note-holders from participating in the rights issue, it would appear that further participation in a rights issue from current equity holders is unlikely and therefore the state will end up footing most if not all of the bill.

    Is it not better that the state’s shareholding is diluted and private sector provides remainder of investment meaning a quicker return to the international capital markets and thus reduced dependency on the ECB which is the largest noose around the governments neck even more than EU/IMF.

    If Bank of Ireland returns to some form of viable financial institution, surely from a tax payers perspective, the less money we put in now is more important than any future gains we might make from Bank of Ireland’s share price returning to a level where the state can make a return on their ‘investment’.

    Bank of Ireland was supposed to be the flagship institution and now it runs the risk of becoming moulded into the same bracket as AIB. There is clearly investor appetite to invest capital in return for equity from note holders into Bank of Ireland, the same could not be said for AIB.

    That’s why these guys bought the bonds in the first place. Do we really care if risky investors are making a return from a government supported bank if it means the bank has a quicker chance of returning to international markets and reduces the burden on the sovereign from adding another billion or so into the bank.

    It appears to me that a central issue is being lost in media discussion and elsewhere on this issue, which is the government has effectively 2 choices for the future of Bank of Ireland;

    1.Face further dilution on its shareholding to 18/19% and offer note holders the opportunity to purchase further equity in a rights offering and avoid close to all further state capital injections into the bank or

    2.avoid dilution of shareholding and be faced with a bill of €1 billion or so in capital, risk court action, potential low take up of debt for equity exchange, majority shareholding in another bank and potentially withdrawal of BOI from London Stock Exchange.

  12. I’m willing to don the green jersey and invest up to €28 in BOI. But before I rush in like a fool, I’d like to know

    1. More detail on the deleveraging plan – IIRC €30 billion in 3 years. That’s a lot and if you only get a little for that lot, it’s a problem.
    2. More detail on their funding and cost of funds – i.e. what happens if the ECB changes conditions on accessing funds or modifies the programme and increases the cost of these funds?

  13. @Jagdip Singh – “And we wouldn’t want to put a stop to all this shovelling…”

    Shovelling does sound like a very Irish solution to an Irish problem 😉

    A question for those who know a bit more about banks and shareholdings than I will ever know….

    …..are there not mechanisms that banks can use (fairly or not) that can dilute shareholdings that the likes of the government (aka the taxpayers) hold? What are the chances some way down the road and things start to recover etc. that just when we think we are going to sell our shareholding for a shedload of money, they pull a stunt that suddenly reduces its value? Rights issues deliberately not taken up, scrip issues, etc. ?? What options do they have to be able to shaft the taxpayers further down the road? And if there are ways to do this, do we have anything being put in place to try and prevent it?

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