Sale of Subordinated Bond in BOI; NTMA 2012 Review

The sale of €1 billion of the Convertible Contingent Capital notes that the Exchequer purchased as part of the 2011 PCAR recapitalisation has gone through today.  The announcement from the Department of Finance is here, while a Bank of Ireland report providing some details of the sale is here.

The notes had an annual yield of 10%.  There are €2 billion remaining in AIB/EBS and PTSB.  Is the sale of the BOI portion a good deal?

The NTMA have published their Results and Business Review for 2012.  The value of the ordinary and preference shares held by the NPRF in AIB and BOI is estimated to be €8.6 billion, up from €8.1 billion at the end of the third quarter.  The value of the “discretionary fund” is €6.1 billion.

At the end of the year the balance in the Exchequer and Other Accounts was €20 billion. The Exchequer Borrowing Requirement for 2013 is projected to be €15.4 billion (or €18.5 billion if two Promissory Note payments are made).

This week’s activities will have pushed these balances to around €23.5 billion. The NTMA plan on raising another €7.5 billion of funds with medium- and long-term bonds during the year and the final €11.5 billion of EU/IMF programme loans are also scheduled to be drawn down.  With a €5 billion bond payment due in April this would result in cash balances of €22 billion (or €19 billion) at the end of the year.

UPDATE: Further statement from the Department of Finance on BOI bond sale here.

200 thoughts on “Sale of Subordinated Bond in BOI; NTMA 2012 Review”

  1. As a general principle, contingent convertible bank bonds do not belong in a sovereign fund of the bank’s resident country. The purpose of the co-co structure is to move bank sector tail risk on to bank bondholders and off the sovereign. Having the sovereign holding these bonds defeats the purpose.

    So this private sale of the bonds was a good move on basic principles, and also constitutes a capital market vote of confidence in the Irish domestic banking sector.

  2. The 1BN coco bond had a nominal yield of 10% that was to be received by the DOF.
    What was the price of the bond when it sold and what does that translate to in the hands of the purchaser?
    I would have thought the price should be pitched at a yield equal to the State borrowing cost plus a a very small risk premium.
    The statement seems to indicate that the purchasers are getting a yield of ~8.25%. Surely this is incorrect. Am I misreading this?

  3. @Joseph how much of a risk premium would you give on a coco in a bank that paid 10% for 10 year subordinated debt back in December? That’s not really “a very small risk premium” over the sovereign…

  4. @Joseph where is the pricing announced?

    Odd that according to the links, 8.25% is the tier one capital threshold below which point these kiddies convert into equity…

    But BOI paid 10% for €250m 10 year subordinated bonds in December so while you’d hope that the cocos with 4 years left to run would be worth more than par, but how much more given there is also the known political will to exit?

  5. First off – I don’t have a clue about this kind of thing so am happy to be dismissed outright on either of these points:
    Point 1: The NTMA seem to be doing an excellent job. Good work yesterday – excellent work on downplaying it today. Overall really competent

    Point 2: this doesn’t affect point 1 but I don’t understand why you’d sell something paying that kind of yield. I know we get a quick return now but would we have been better off holding into them?

  6. @Eureka 1. We don’t want to own banks or cocos of banks or anything else to do with banks. So politically the State wants to sell.

    2. BOI don’t want us owning them, or their convertible debt instruments, they want the market to hold them so they want us to sell so that they can claim to be standing on their own feet.

    3. We have other bank assets that we want to sell, so being able to say to the markets “hey look, one of our banks is almost entirely off the national balance sheet and investors have confidence in it improves the chances of us being able to sell the remaining shares in BOI and maybe some of the investment in AIB and ILP. The BOI debt issued in December is already trading at a premium so now looks like a good time to sell.

    4. We want to get cash in the door while everyone is smiling at us in case the EZ has another hiccup later making it more difficult to borrow/ sell assets

    So yes, we’re foregoing €400m of income over the next four years if we think BOI is now sound. We’ll get a small sliver of that back assuming that these things weren’t sold at par. But the NTMA must have calculated that we’ll be better off for the above reasons in the longer term…

  7. @ Aisling
    Thanks for that.
    They seem to know what they’re doing. Imagine it all gets really tight at times – the same guys who buy the sovereign debt yesterday probably also get lined up to buy this bond.
    This doesn’t make sense to me on the face of it but when it’s put in context and given that they really seem to know what they’re doing looks like a good thing overall.
    Cheers

  8. Is this one of subordinated bonds that still gets paid out (by the public exchequer) even if BoI makes a loss?

  9. @OMF this is a convertible instrument which converts if BOI’s tier one capital falls below 8.25% so no.

    If BOI gets into the **** again before 2016 this bond will convert into shares rather than being repaid.

  10. Ashling,
    Will the buyer of the bond be forced to convert to equity in the event that BOI needs extra capital. Put simply, has the govt. not secured someone else to stand in the queue in front of it to take a bullet if need be.

  11. @Joe If the tier one capital falls below 8.25% then the purchasers of these bonds take the bullet. If the tier one capital only falls to say 9%, and BOI cannot raise additional fund on the markets then we still take the bullet if we want to rescue the bank.

    But for the tier one capital to fall to 9% would require big new losses which have not already been provided for under the Blackrock stress tests – so am sure that if we just held our nerve it would continue making losses and fall below 8.25% 🙂

    Hopefully the worst is behind us and we’ll never have to find out.

  12. @Aisling

    1. We don’t want to own banks or cocos of banks or anything else to do with banks. So politically the State wants to sell.

    What makes you say this? The state made an investment in BoI with public money. Shouldn’t it expect a return on that investment, indeed a profit?

    2. BOI don’t want us owning them,….

    So they ring up their friends in the DoF and get them to spend even more public money, getting the State to take a loss so BoI can own themselves into insolvency once again. And who’ll pick up the tab for that I hear you ask?(What fun!)

    If BoI is completely privatised, I expect that it will be let go to the wall when the next crash comes. Well, that is, I would hope so. I actually expect the bank will be bailed out again. In either event, I don’t think the State should sell.

  13. @OMF The State did make a profit on its investment. €10m plus €100m in interest last year. We put in €1bn and got back €1.11bn which is not a bad return on our investment in around 18 months.

  14. @Ashling

    The State and NTMA did an excellent job yesterday in buying cash at ~3.5%.
    Today the State bought cash for ~10% just to get rid of a piece of bank, a bank that it claims is on the way to recovery, in an economy that supposedly has 85% of the heaving lifting done on the way to recovery.

    Ireland is being ransacked.
    The deal only makes sense at this price if one believes that BOI currently with a Tier one ration of ~ 15% is in danger of hitting a tier one ratio of 8.25%. As for the supposed strategic value of the disposal, where I work strategic value does not pay the wages.

    The State seems to have a special liking for disposing of BOI shares at prices very favourable to the purchasers. Makes one wonder.

    It took an approx 75% haircut on the sale of BOI shares to the Wilbur Ross owned group. And now this!

  15. @ Aisling

    We will have earned the 10% for around 18 months so it is close to €150 million in interest over the 18 months.

    @ Joseph,

    Not all financial instruments are created equally. This is a subordinated bond in a bank. I for one prefer that the government has €1 billion in cash than a 10% contingent convertible bond in a bank of the same value.

  16. God, I can only imagine the insanity that this thread will create in terms of people completely unfamiliar with subordinated coco bonds, given the fun we’ve had in the past with reltively simple stuff like promissory notes and ELA…

    Quite simply, this is only marginally above equity risk, and would be considered quasi-equity by the ratings agencies.

  17. @Seamus have to admit I was lazy and just read the press releases rather than the note terms and payment terms (although hope BEB might set the record straight on that).

    I’d conservatively assumed that there had been one interest payment, and that the reference to 101% of principal and accrued interest suggested that we were just getting a proportion of the accrued interest but happy to stand corrected on that. Didn’t really make sense to get 1% of an interest accrual but didn’t like to ask the question here given the chances that it would be seized upon as additional evidence that the “powers that be” are out to assist “vested interests” at the expense of the Irish taxpayer.

    If the Government press release is underselling this then so much the better…

  18. Cash settlement should have 46mn accrued interest per billion euro nominal, ie 1.01bn + 46mn = 1.056bn consideration (roughly)

    Therefore total “return” for the govt of 1.056bn + 100mn (coupon from last year) = 1.156bn, ie 15.6% return in around 18 months

  19. @Aisling et al.

    If the tier one capital only falls to say 9%, and BOI cannot raise additional fund on the markets then we still take the bullet if we want to rescue the bank.

    If BOI were unable to raise the funds to redeem the note, while at the same time having positive equity of 9% or more, wouldn’t the bank be able to repo some of its assets with the ECB or the ICB to raise the funds, and so there would be no need for any further public money? i.e. the CB acts as a lender of last resort to a solvent bank?

    I’d like to think that the following statement is unambiguously true – “If ever a time comes when the State needs to put more money into BOI, then any purchasers of these coco bonds will have lost 100% of the principal on these bonds” – but I don’t know for sure.

  20. @Seamus + B.EB Thank you gentlemen. Happy to be proven wrong on this.

    So, just to clarify, the State has made a ROI of 15.6% over 18 months in a risk averse world when the “masters of the universe” that are hedge fund managers were lucky to break even?

    Had the Government put that money on deposit with BOI they’d have been looking at returns in the mid single figures, had they invested it in bunds they’d have been looking at the low single figures.

    If true, seems like a great answer for the Irish taxpayer.

  21. @ Bryan G

    Equity holders got hosed during this crisis, subordinated debt holders fairly badly beaten up too (rightfully so). No reason to think true risk capital like cocos would be protected in the future. Let that also be a note of caution for any pensioner or credit union looking for a high yielding home – don’t come whinging to the govt next time around. Cocos are going to be very popular with regulators going forward.

  22. @Bryan G Confusing apples with pears. Equity does not equal tier one capital. ECB repo operations do not equal tier one capital.

    Such a precipitous decline in tier one capital would require losses well in excess of the Blackrock estimates (adjusted for our 12.5% CT rate on deferred tax assets which still count as tier one but are being phased out under Basel III), in the 2011 EBA stress tests DTAs accounted for 56% of tier one for AIB but only 13% for BOI.

  23. ‘The State’s investment in these instruments dates back to the 2011 PCAR exercise, and the successful exit from a large portion of this position represents another step along the road to normalising the State’s relationship with the banking sector and reflects positively on the progress being made in returning our banks to a position of strength.’

    Due respect to the expertise above, but what on earth is a ‘normal’ relationship between the state and the banking sector ? I recall that photo of Che Guevara smoking a cigar in the office of the Director of the Cuban Central Bank, so, in historical terms, anything goes in these matters.

    I suppose, if you are a leading pol, a senior PS figure, or a TU luminary, then what you want to see is a nice cash hoard in the state coffers, so you don’t have to take so many phone calls from Europe. If you can ‘keep her lit’ until you get your own package, Ireland will be someone else’s problem. It’s a ‘win win’.

    @ Aisling
    ‘So, just to clarify, the State has made a ROI of 15.6% over 18 months in a risk averse world when the “masters of the universe” that are hedge fund managers were lucky to break even?’

    It was a temporary arrangement conducted under duress, surely, and so not at all like a normal investment. Apples and pears again.

  24. @B.EB & Aisling

    I guess “unambiguously” just doesn’t apply to the world of banking, but it seems that for all practical purposes there aren’t any fancy dance moves possible that would result in the State being pushed to the top of the line again in front of the coco holders, and that’s unambiguously a good thing.

    A couple of minutes googling threw the following up. Seems there could be conflicts of interests between equity and coco holders, but doesn’t impact the State directly since both are ahead in the loss hierarchy. Of course the real goal needs to be the removal of the implicit State guarantee on senior bondholders.

    From a Telegraph article

    Under the terms of a CoCo, an investor is sold a bond by a bank with the condition that should the lender’s core capital fall below a certain level the debt will transform into shares to provide the institution with an increased buffer to take new losses.

    However, the Bank of England said that while this was fine in theory, in practice buyers of the CoCos could “run” as soon as a bank showed any signs of getting into trouble to be replaced by investors who might have a vested interest in forcing the bonds to convert into shares.

    “Policymakers should also consider the possibility that precautionary contingent capital instruments lead to wider systemic problems because investors have incentives to manipulate the conversion trigger to generate a conversion or bank equity holders or management have incentives to take actions (such as fire-selling assets) to try to avoid a conversion occurring,” said the Bank.

    CoCos were one of the measures looked at last year by the Government-appointed Independent Commission on Banking as part of its review into ways to make the British banking industry safer.

    In the end, the Commission recommended that regulators be given explicit powers to force bondholders to take losses in any future bank bail-out. The precise nature of these powers will not be known until the publication next month of a white paper on banking reform by the Treasury.

  25. Unless there happen b a cool bil. under the bed,down back of Noonan’s sofa..that is….
    The above math is nonsense.

  26. @ John G

    “Unless there happen b a cool bil. under the bed,down back of Noonan’s sofa..that is….
    The above math is nonsense.”

    You’ve heard of the NPRF I take it?

  27. @BEB yep unfortunately …and their derisory returns.
    Your point is ?
    Ah…no cost of funds then!
    In

  28. @BEB by the low hurdles you guys accept I guess preservation of capital is a plus.
    Yippee they got the money back phew…it’s a BS return.
    Mbl can run the numbers and stand over the 15% is nonsense comment,does not include transaction costs.

  29. Cost of funds could be estimated off weighted average coupon on Irish gov’t bonds, which is (I think) south of 5%pa. Call it 5%, for argument’s sake, then the total cost would have been 7.5% for the 18 months. That leaves over 7.5% clear return based on BEB’s calculations.

    If you go by the cost of Troika money, this has been reported (accurately??) as 3.5%pa – using that the return on the investment, forced or not, is higher again, at close to 10%.

    Whether the sale was prudent or timely will only be known over the next few years – but, however involuntary the original investment was, it HAS made a profit, even allowing for cost of funds.

  30. And, as rapacious as the deal advisers may have been, I don’t think inclusion of their fees would alter the numbers that much, especially if, as has been reported, BoI themselves bore them.

  31. @BEB this is pointless I’m in a bar in NY,neither the time nor ‘interest’.
    So it’s like a 15% eh return per 18 months that’s a new metric for me !

  32. @ John G

    “Neither the time nor interest”

    You started it dude, not my fault you hadn’t done any background research into the deal before offering such in debth expertise…

  33. I will let it go but really WTF is a “return”
    “Therefore total “return” for the govt of 1.056bn + 100mn (coupon from last year) = 1.156bn, ie 15.6% return in around 18 months”
    Return on what now exactly as compared to..

  34. I have read the posts above and am grateful for all the clarity.
    To be honest this actually sounds like a good thing. I think it’s a very nice way to raise funds for banks and should happen more often going forward.
    The 10% is a bit too hefty but then it seems that in future states might not guarantee banks – they might let bond holders get some equity if the bank goes belly up (kind of…) so that risk premium has to be covered.
    Interestingly – what it might mean is that you can’t have your cake and eat it. In a world where sovereigns are going to rightly distance themselves from banks the costs for banks to raise funds could go up and this will ultimately be passed onto the consumer/customer.
    I could have this all wrong but it’s all a little bit crazy. I don’t htink that these types of bonds will form a huge part of bank funding but they could contribute to it overall and that could make interests rates rise. Funny old world

  35. Today’s Irish Times:

    “Barroso and Van Rompuy back Irish bank debt deal”

    ‘Mr Barroso said Ireland’s presidency of the European Council offered a great opportunity for the State to “make its case better known” regarding a potential bank debt deal, as well as showcasing the “extraordinary resilience of the Irish economy and the capacity of the Irish people”.’

    Article ends:

    “The Government yesterday sold Bank of Ireland bonds worth €1 billion to a number of international institutional investors, marking the first return of public money injected into the banking system [correct? what about previous sale of chunk of BoI].

    “Minister for Finance Michael Noonan welcomed the sale and said a further €7 billion in public investments in Bank of Ireland, AIB and PTSB, over and above ordinary shares, would be sold at the appropriate time. The €1 billion bond investment was part of €64 billion the public invested in the banks.”

    Last sentence is the point for me and I appreciate these numbers vary – but Irish public put in €64bn approx: that money needs to come back / be renegotiated, plus extra for damages.

    There’s more too it that simply getting the banks off the state’s hands.

    Meanwhile even Asmussen says:

    “Certainly, any costs incurred from resolution should first and foremost be covered by the private sector, through establishing a European Resolution Fund raised by levies on the banking sector.”

    http://www.irishtimes.com/newspaper/frontpage/2013/0110/1224328631738.html

    http://www.ecb.int/press/key/date/2012/html/sp121219.en.html

  36. Good news for state and Bank of Ireland.

    Meanwhile Bank of Ireland reduce deposit interest rates for any accounts accessible online to practically nothing.

    I am getting .03% on personal deposit a/c and approx .75% on business deposit!

    What is BOI paying in the interbank market? Is there still a penal premium over EUROBOR being charged to irish banks?

    I suspect BOI will soak customers for cash to get rid of govt interest. Therefore state selling cocos moght save us some pain!

  37. @ Zhou

    they’d probably pay euribor +45bps or so for unsecured interbank cash

    @ John G

    my interpretation of “return” is the difference between what you put in and what you get back. Revolutionary, i know. We’re not talking about SEC/FSA audited peer comparable fund management returns from professional organisations tasked with investing and managing people’s money. We’re talking about a government having to do a somewhat one-off and temporary purchase of a stake in a bank, and then selling it, and the difference in between.

  38. @ Aisling
    “Equity does not equal tier one capital”. Ordinary equity and accumulated profits are Tier 1. Sub equity or other e.g. minority interest can also qualify, depending on terms, but usually with central bank restrictions and haircuts (there a whole world of ‘technicality’ and CB discretion in this area…and may differ from jurisdiction to jurisdiction). As per BEB above, the cocos are very close to ordinary equity in a winding up. Without knowing the legalities of these coscos in detail (there are different types /variations), if BOI were to get in the s**t as Aisling puts it, say by having a blow out on its mortgage books (not academic), then there is a strong chance that the cocos will be (should be) hit as well. While the Irish CB, etc. regularly state that the Irish banks are well capitalised, we know that this capital will be severely tested. In that sense, the sale of the cocos is excellent news. However, it makes me wonder what if any ‘comfort’ has been given to investors on this. Hopefully, none.

  39. I should add that the above calcs are too loose. Cost of funds, yes, but also PV would be taken into account by a trader. Need to know more detail. Presumably the return is market based and reflects the term to maturity….refinancing risk, default risk (waterfall in winding up), return benchmarking etc are factored in there. Looking forward to seeing more detail on pricing…whether the 101 represented a true premium. As in all calcs, depends on the basis of calculation. It’s npot clear at present (to me anyway…).

  40. @Paul W to equate equity with tier one capital is just wrong when (presently) things like DTAs count as tier one capital (56% of it in the 2011 EBA stress tests for AIB – albeit with the happy accident that since we own AIB DTAs really are shareholder’s funds… But if we managed to flog AIB tomorrow the DTAs would still be tier one capital until Basel III kicks in fully and the grandfathering for DTAs passes.)

    I would imagine that the cocos would be hit in the event of the mortgage book blowing up and pretty much halving BOI’s tier one equity (albeit that I cannot see that happening). There’s little comfort a Government with a debt to GDP ratio like ours could or should give.

  41. @ Aisling
    “DTAs”…? Excuse me for not knowing what the abbreviation stands for, I don’t follow this particular subject in much detail.However, I still don’t quite get your point.

  42. Ok, Deferred Tax Assets….should have read further back more closely (also normally refers to Double Taxationo Agreements!). Surprised at the 56% level. Given continuing losses, are the DTAs real anyway? WOuld a purchaser of AIB or BOI accept?
    As per Irish CB /Honohan ‘anxiety’ re mortgage losses last year, I think that the PCAR results /forecasts will be severely tested.
    The question remain as to whether the cocos will be deleted pari passu with other shareholders funds. If the banks need another rescue, and more capital (likely), it would be good to know just how much ‘equity’ buffer the cocos give. Without knowing that, I suppose that we cannot be definitive about just how good this deal is.

  43. @ Seafoid

    the original freudian was actually “in debt”. I amended before posting, but not properly it seems!!

  44. I would also have thought also that any investor would be mindful of (stressed) cashflow profile of the cocos and would rely on low refinancing risk at term maturity. In that way, ‘unseen’ comfort can be taken (given) to an investor e.g. the hit to capital caused by mortgage books can be ‘managed’ to ensure that the coco investors don’t get hit….All sorts of ways (legal and practical) of making sure no losses to the investors and building ‘confidence’…!!

  45. @Paul W sorry, because I’d said deferred tax assets earlier I assumed DTA would be understood as such. We also use DTA as an abbreviation for doubt taxation agreement but they’re not relevant for tier one capital purposes.

    Yes, I would join you in questioning whether AIB should be recognising it’s DTAs given their level, but the rules require them to be discounted if not realizable, but they don’t appear to be so discounted per the accounts.

    The upside of selling some of the ordinary equity and the cocos is that we increase the chances that if BOI requires additional capital it can raise it from investors rather than coming cap in hand to us.

    But as a Bank of Ireland account holder, like so very many others, I suspect that the State will still have to be the investor of last resort in a bank which clearly is of systemic importance to our country, but obviously bondholders ought to be wiped out first (subject to the difficulty of distinguishing between senior bonds and deposits).

  46. @ Aisling
    Apologies for my not reading your comments in full first.

    The fact that they have not removed the depositor /bondholder pari passu item tells one much (everything) about their priorities…..The banks are clearly King.
    The DTA aspect sounds very iffy….has always been one of the BS areas of accounting which can be fudged to suit. Not an easy subject and very ‘subjective’. Still, I am surprised at the 56% level for AIB…and that was accepted by the CB. Any up-to-date ‘performance’ vs. projection available on this? Seems that everything is a matter of ‘interpretation’ these days. To be honest, I have little faith that the investors in the cocos have not been given some comfort…practical or otherwise. The hunt for yield wouldn’t justify the return (est) versus the type of return professional equity investors would normally require. Difficult not to be cynical given all the smoke and mirrors over the pat years.

  47. @Paul W “We” means the EU in this instance, not Ireland, Ireland cannot change the rules on this unilaterally. I assume given the Commission paper on bailing in bondholders the EU will act on this and distinguish between senior bondholders and depositors going forward. All EU legislation takes time.

    If you think that the Irish property market is near the bottom, and that BOI is well capitalized (and bearing in mind that reports suggest that the existing bank shareholders who must hold such views were significant purchasers) the yield looks commercial. They’re already in line to be wiped out as equity holders, so being in line to be wiped out as coco holders is nothing new… Only difference is that the bonds will pay more than the equity in the coming years

  48. @SC

    “At the end of the year the balance in the Exchequer and Other Accounts was €20 billion. The Exchequer Borrowing Requirement for 2013 is projected to be €15.4 billion (or €18.5 billion if two Promissory Note payments are made). ”

    On this, still no offical work on BoI and the Government bond they hold from last year’s promissory note fiddle? Are they going to keep it another year? Will the Government have to pay two payments (over 6bn) this year?

    God its so murky.

  49. Related issue.
    Why is the government building up such huge cash balances -approx. €25 billion while we are borrowing a total of over €150 billion? What is the net additional interest cost on this excess borrowing which is adding to the deficit each year? Could it be as much as €750 million?
    Sounds like our top public servants and politicians are worried about possibly running out of Euro funds as the Troika funding ends during the next year.

  50. @ Tom

    deficit this year expected to be around 12bn, and 5.1bn redemption due in April, so its just pre-funding against this, it wont all sit there “unused”. There is a further 7.6bn redemption due in January 2014.

    NTMA has always been relatively conservative in terms of cash buffers in case of market freezing up (we had 6-9 months of cash on hand when we applied for Troika support in Nov 2010). You can argue they are funding these requirements too early, but as we have seen before, the markets can turnaround very quickly, even if nothing has changed in Ireland itself (ie a problem with Greece, for instance)

  51. @Tom

    I am just repeating what BEB said but even though we are fulfilling bailout terms more actively than Greece, we wouldn’t want to even entertain the situation every three months that has afflicted Athens about needing bailout monies as a matter of urgency to pay this bond or that bond.

    Also, even if though we are fufilling the conditions, if it came about suddenly that there was a definite (rather than just suspected as now) 15bn recap hole in the banks due to ongoing mortgage concerns then it’d also be more than reassuring to know that we would have some degree of leighweigh.

  52. @Tom Paine
    It’s a costly business building up that cash pile. It’s costing the taxpayer up to a billion this year. Namawinelake was the first to point this out. I listened to the boss of the NTMA admit this on rte yesterday when he was asked why they didn’t take up the excess cash offered.
    As for the CoCos it’s giving away 67m a year to bondholders. Why they didn’t price it to yield less than the 10% coupon is anybody’s guess. It appears very shortsighted for the state to be giving up revenue to supposedly help a minority owned bank.
    And then there is the PN debate. All this hype is weakening our argument. If we can borrow at 3.3% (less than the cost of bailout funds) how can we argue that we need a deal on the bank debt in order to sustain our debt pile.
    One wonders!

  53. @Fiatluxjnr

    “It’s a costly business building up that cash pile. It’s costing the taxpayer up to a billion this year. Namawinelake was the first to point this out.”

    Errr..the first to point out that borrowing has associated interest costs? Okay.

    We still have have and are getting the bailout money – it is not like we borrowed the on the private markets to replace it.

    I think people need to show a little bit of realism on exactly what our long-term interest rate is likely to be when if and when we leave the troika. We were borrowing at close to 5% for much of 2009.

  54. my interpretation of “return” is the difference between what you put in and what you get back.

    How about the difference divided by the amount invested, as in, the actual rate of return on the investment. People are claiming that government has made a 10% return (colour me skeptical), but that’s over 4 years, which is less than a 2.5% rate per annum. Megabucks these are not.

    Anyway I doubt the whole premise of these supposed profits. Last time I checked the total direct government capitalisation of BoI was €4.7 billion. So far, including this sale, only €2.1 billion has come back. I doubt the full €4.7 will ever be recouped, except in 20-30 years time, and without interest.

    Protestations of profit made on this transaction are a fig leaf over the naked loss of public control over BoI which they represent. The instant the bank even beings to approach profitability, the state is falling over itself in its eagerness to throw its shareholding out the door.

    BoI should have been nationalised and milked for public profit from now till eternity. Instead it’s been filled up like a piñata with public money, and hung up in the market for everyone tall enough to have a whack. This sale was wrong.

  55. @OMF

    “Last time I checked the total direct government capitalisation of BoI was €4.7 billion. So far, including this sale, only €2.1 billion has come back. I doubt the full €4.7 will ever be recouped