Bank Issues

This post was written by Seamus Coffey

Two of the “Irish-Headquartered Group” of banks raised funds from capital markets today. 

AIB issued €500 million through a senior, unsecured (and unguaranteed) bond.  Reuters report here.

PTSB also raised €500 million but from a mortgage-covered bond.  Press release here.

29 Responses to “Bank Issues”

  1. John Gallaher Says:

    just an FYI heres s/p and fitch on PTSB fastnet 9.
    http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723141
    http://www.standardandpoors.com/spf/upload/Ratings_US/Fastnet_Securities_11_11_13.pdf

  2. brian lucey (@brianmlucey) Says:

    AKA : we raised money. We need to wean banks off these Senior notes. Its a oneway bet. AIB cant pay? No problem. Paddy is good for it. Pacta sunt pay up pixies etc

  3. Ernie Ball Says:

    And of course “unguaranteed” means “guaranteed.”

  4. grumpy Says:

    Brian, read this page, and do bear in mind that professional market participants were not given these explanations or warnings when they bought senior bonds pre 2010.

    Taking advantage of them, even a bit, would have been “unthinkable”.

    Besides, banking accounts departments don’t list senior bonds under “risk capital”.

    “oneway bet”? At that yield then the ESB pf will no doubt have fully bailed-in its boots.

  5. grumpy Says:

    forgot the link:

    http://www.aib.ie/business/wealth-management/null/investing-with-capital-security

  6. Tadgh O Laighin Says:

    A Spoonful of Optimism per day for many of contrinutors would go along way to helping country build on progress made todate in standing on its own two feet.. !

  7. seafóid Says:

    Age shall not weary them nor the years condemn. And at the going down of the SME sector and in the morning we shall remember the banks.

  8. Michael Hennigan - Finfacts Says:

    @ Ernie Ball

    And of course “unguaranteed” means “guaranteed.”

    And of course…guarantees are only given to special people!

  9. brian lucey (@brianmlucey) Says:

    Michael H
    Which of the following sectors, on the whole, has done better out of this crisis?
    a) Public Sector workers of all stripes
    b) Holders of unguaranteed unsecured bonds and supra 100k deposit holders in bankrupt banks
    In your answer, please try to keep your natural bitterness at being in neither of the above (as indeed am I and I suspect Ern) groups. Marks will be deducted for the insertion of random comments in bold…

  10. brian lucey (@brianmlucey) Says:

    that is of course group b of which i speak excluding myself. i am in a

  11. seafóid Says:

    “Bank issues”

    I thought the thread was going to be about incompetence, group think, SME death and so on.

  12. Michael Hennigan - Finfacts Says:

    @ Brian Lucey

    It’s usual enough for camels not to see their own humps: just pointing out that some state guarantees are more welcome than others.

    @ Seamus Coffey

    As you know, “Irish headquartered” banks could include foreign-owned ones.

  13. Joseph Ryan Says:

    I must owe an apology to Bond. Eoin Bond, for suggesting that unsecured bonds had died, (and were definitely sent to heaven) and we would never see unsecured bonds issued again by Irish banks.

    On second thoughts, I think Brian Lucey has hit the nail on the head, re the nature of ‘unguaranteed’ in this case.

    On the bigger question, how can Irish banks, or the Irish economy, make it back to ‘health’ borrowing at ~3% on the market, while core banks probably borrow at ~1%. That is a min 2% head start from the word go for core countries.
    Maybe if we restructure more, we won’t notice the difference.

  14. Fiatluxjnr Says:

    Its developing into a really funny (scary) old world out there with negative interest rates now seriously being contemplated. This probably partly explains AIB being able to get this unsecured (?) senior away and being oversubscribed 7 times.
    The views of Summers , Sumner and Krugman on the new reality are worth watching.

  15. Fiatluxjnr Says:

    And from the banking conference…a dose of reality.
    “Bloomberg’s London Bureau chief, Mark Gilbert, sounded a much more downbeat note.

    He argued that the incipient recovery across most markets was enabled by financial repression, but as soon as the US Federal Reserve commenced the tapering of its quantitative easing programme, then the recovery would unravel.

    Financial market repression is when central banks reduce interest rates to close to zero or negative levels in an effort to stimulate growth. Faced with a dearth of investment opportunities, investors pile into equities and other asset classes.

    But Mr Gilbert argued that there has been very little real reform across the banking sector over the past few years.

    Consequently, once interest rates started to increase, the financial market crisis would return.”. The examiner

  16. John Gallaher Says:

    One concern would be the Freddie/Fannie precedent,their yield was supposed to reflect NO govt. guarantee yet when the models failed…
    Expensive money if the corporate veil can be lifted.
    Has anyonce come across or got a link to the actual “paper” it’s 1Billion issued by the irish state…..if not I have a look around this morning,assume it’s ok to post them ?
    Had a very quick read off fastnet 9-looks like there goes the family silver…second link above should work.

  17. seafóid Says:

    @ Fiat

    Financial repression is such a joke of a phrase. Lowering interest rates to give rich people and companies time to sort out their mess is supposed to be punishment. Real financial repression is what happened in Cyprus to depositors.

    And so much for that other standard of financial crises, “bond vigilantes”. They are real pussycats when you print money for them.

  18. Fiatluxjnr Says:

    @ Seafoid.
    Financial repression affects a lot more than the wealthy. Pension funds which are already in deep trouble will suffer as will your everyday frugal pensioner with a few bob. I suppose it’s understandable that funds will flood into issues like AIB unsecured notes given the relatively high interest rate and implied guarantee. Or is that an explicit guarantee given that the banks are owned by the state?

  19. Ernie Ball Says:

    What “guarantee” do you think I have from the state, my Kuala Lumpurian friend?

    Guarantee of salary? Uh, no.
    Guarantee of tenure? I guess you haven’t seen the new contracts revised under Croke Park.
    Guarantee of pension? Only if you think the Irish State will be creditworthy for the foreseeable future.

    So, please hump off.

  20. John Gallaher Says:

    Welcome,welcome,c’mon down the price is ……
    hold on WTF……..towards “ireland” hmm…why would the minister issue a thank you note,sorry a statement like this,other than to assure investors/speculators.
    Shurly a bit off distance would be more astute,some irate widow and orphan..oh and they always are..could be waiving this around down that bumpy road ahead.
    Less said the better in these situations..losers spin,winners grin.

    “In welcoming todays successful funding transactions, the Minister for Finance, Mr. Michael Noonan, T.D. stated:
    “Last week the Government agreed to exit the EU/IMF programme without further supports. The initial market reaction has been positive and these transactions, the first of their kind for both banks for a number of years, are further evidence of improved international investor sentiment towards both institutions and towards Ireland.””
    http://www.finance.gov.ie/viewdoc.asp?DocID=7912

  21. Fiatluxjnr Says:

    Seems the Germans want special rules for some of their banks in the upcoming stress tests owing to the “particularities” of those banks..
    http://www.reuters.com/article/2013/11/21/us-germany-banks-idUSBRE9AK0NS20131121
    Btw, they also want to nobble apple, google et al on tax avoidance and aren’t prepared to wait for the OECD.

    They are doing well in this crisis and just want more!

  22. Bryan G Says:

    Until the bail-in rules kick in, governments are required to provide “national backstops” so “unguaranteed” means “guaranteed”. On Jan 1, 2018 the priority inverts (if the BRRD gets passed in its current form) and large depositors and senior unsecured move ahead of taxpayers when losses are to be imposed. AIB’s 3-year issue fits into the “old rules” framework. The real test will be unsecured debt that matures after the new bail-in rules kick in.

    The ECB want to bring the bail-in date forward, and the bail-in part of the BRRD could derail altogether before enactment, but that’s the plan as far as I can tell. The spreads between strong and weak banks should widen significantly when the new rules take effect.

  23. John Gallaher Says:

    prelim prospectus for fastnet 9-AIB and PTSB did not offer these securities for sale to US investors-should have more soon.
    @BEB-Eoin you got AIB handy ?

    http://s3.amazonaws.com/siteninja/site-ninja1-com/1385063933/original/fastnet.pdf

  24. Fiatluxjnr Says:

    @JG

    Are those for real…for instance…
    Limited Recourse
    All of the Notes are ultimately limited recourse obligations of the Issuer and, if the Issuer has insufficient funds to pay amounts due in respect of the Notes in full, following the distribution of all available funds, any amounts outstanding under the Notes will cease to be due and payable as described in more detail in Condition 10 (Limited Recourse).

  25. John Gallaher Says:

    @Fiat,mbl will review a little later and get back to you,but the second link on first post should be good.
    Still waiting for the AIB info,the chap in office said checked usual places,somewhat surprising given your “history” and ownership structure they not publicly available easily….

  26. seafóid Says:

    According to Private Eye, Barclays is fighting a proposed fine of GBP 50m from the Financial Conduct Authority for failing to disclose GBP 322m in “fees” paid to Qatari spivs who injected GBP 6.1bn at the height of the credit crunch in 2008. Barclays paid a total of GBP 450m in kickbacks for the capital.

    If AIB needed say 10bn the “fees” would presumably be scaled up proportionately.

    Who would be the fixer on the Irish side ? Blair is probably too busy.

  27. john gallaher Says:

    @Fiat-yep ‘real’ but prelim doc’s neither was offered nor for sale to US investors, so a little more difficult in getting them.As off close business yesterday AIB was still not in the system.

    Limited Recourse-yes thats the intent,you get whats in that ‘box’ and thats the end off it-as far as i know there have been NO litigation over RMBS/CMBS in Irl.
    Over here the JPM shake down was over RMBS originated and sold by WaMu/Bear.
    Unlikely any ‘newbridge’ loans in there,but if say they stuffed the pool with garbage or misrepresented the underwriting,may be some issues but i must state NO suggestion off anything nefarious here.

    Fiat-recourse/non recourse only an issue when you lose money,unlikely with this pool….with RMBS most the litigation has been about allegations off fraud/mis-selling.

  28. Fiatluxjnr Says:

    @JG
    Thanks. Caveat Emptor. Guaranteed to the extent the property market holds up. I think I’ll pass.

  29. John Gallaher Says:

    @Fiat-good summary here.

    “Instead, the bank opted for the more expensive mortgage-backed bonds.
    Issuing a bond solely backed by residential mortgages does have regulatory benefits, however, since a bank can simply walk away from the structure without this being a default, leaving bondholders to be paid back by the underlying mortgages.
    The transaction, dubbed Fastnet 9, carried a coupon of 165 bps over three-month European interbank rates, while Bank of Ireland’s covered bond, priced at the beginning of November in a similar maturity, was trading around 128 bps over mid-swaps.
    Weighed down by a large stock of loss-making mortgages, permanent tsb made sure to offer the cream of its portfolio.”

    http://www.reuters.com/article/2013/11/21/ireland-banks-funding-idUSL5N0J53XS20131121

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