State's bank holding drops to 15%

onemorechance

The state's holding in Bank of Ireland has dropped to just over 15% after a billion euro investment by a Canadian investment firm.
Fairfax Financial Holding has reduced the Government-managed stake from 36% after buying up 10.51 billion shares at 10 cents each.
Michael Noonan, Finance Minister, said it was a successful deal.
"The commitment by a number of significant private sector investors to invest side by side with the state's retained holding without any form of additional risk sharing by the state reaffirms the Government's banking policy," Mr Noonan said.
"It further underlines how we are successfully breaking the link between bank risk and the sovereign."
The stock deal was worth 1.051 billion euro.
The state shareholding had been held by the National Pension Reserve Fund. The sale dramatically reduces any possibility that Bank of Ireland will fall into majority state ownership.
Fairfax Financial Holdings is a financial services holding company with key insurance interests. The company has been under its present management since September 1985.

http://uk.news.yahoo.com/states-bank-holding-drops-15-142453080.html

I am confused!

Fairfax holdings has bought 21% of BOI for e1 billion. I'm not sure how much the Government gave to BOI but I was sure it was more than e5 billion.

Has the Government given, or guaranteed, BOI for more than e5 billion?

Basically, what I am asking is, have the Government gotten back the value of their investment in BOI, or have the Government sold 21% of the bank for less than what they "paid" to get that 21%?

If the latter is true, is this deal good because it reduces the the Governments liability to the banks debts? Or has Fairfax made a no lose investment as the Government still is the one that has to guarantee the bank's liabilities?

I'd appreciate it if someone could explain this to me!

StupidLikeAFox

They got €5.2bn last march seemingly

http://www.rte.ie/news/2011/0331/banks-business.html

BANZAI_RUNNER

from what i can see, the bank guarantee scheme is still in place ( in some shape or form), so the government made a loss selling the shares, and we still have to guarantee all the deposits etc , so i think the government dropped the ball big time on this

Irish Slaves for Europe

Why on earth would he sell now when bank shares have been hammered so much in recent months due to the Greek crisis.

So yesterday Fat Rabitte gave away a huge chunk of our waters for oil exploration, and Fat Noonan gave away a huge chunk of BOI for next to nothing. Depressing stuff.

SBWife

This is old news. The transaction was announced at the end of July it just closed now.

onemorechance

It still does not make sense, but I guess none of it does!

He said "we are successfully breaking the link between bank risk and the sovereign", so does this mean that the Government is only exposed to 15% of the banks liabilities, plus the up to 100k depositors guarantee, or are the bank debts, i.e. the bond holders still the Government's liability?

Or has the banks (major) liabilities already been taken away by NAMA, thus creating a solid bank and a good investment opportunity for the likes of Fairfax Financial Holding, while the Government ends up with the debt, but f**k-all of the solid bank?

If it's a good investment for Fairfax why the hell not just keep it!!

This e1 billion cash for the Government will, or already has, cost the Government multiples of billions it seems!

Good loser

onemorechance wrote: »

http://uk.news.yahoo.com/states-bank-holding-drops-15-142453080.html

I am confused!

Fairfax holdings has bought 21% of BOI for e1 billion. I'm not sure how much the Government gave to BOI but I was sure it was more than e5 billion.

Has the Government given, or guaranteed, BOI for more than e5 billion?

Basically, what I am asking is, have the Government gotten back the value of their investment in BOI, or have the Government sold 21% of the bank for less than what they "paid" to get that 21%?

If the latter is true, is this deal good because it reduces the the Governments liability to the banks debts? Or has Fairfax made a no lose investment as the Government still is the one that has to guarantee the bank's liabilities?

I'd appreciate it if someone could explain this to me!

Good question. Scofflaw should know.

There was a rights issue at 10c in August? Govt took up some rights at 10c - probably the 21% they have now sold on. They probably came out quits.

If correct it's a good investment as they can use the money to reduce borrowings taken out at 5-6%. BOI shares are currently less than 10c.

Scofflaw

At a first look, the government acquired 36% of a stake in BoI with an expenditure of €5.5bn - which values their stake at €152.8m per %.

They sold 21% for €1bn. Valued as per the original acquisition, that should have been €3.21bn, so, off-hand, it looks like the state takes a loss on the deal.

However, the point of the deal is that it is a relatively normal one - the investors have not asked for any additional government guarantees on the bank's debt, which other investors were looking for. So the government is "only" guaranteeing whatever BoI has issued under the Eligible Liabilities Guarantee (currently c. €22.7bn as far as I can see) - that doesn't change.

What we can't tell is what the value of the remaining 15% government stake in BoI is worth, and putting some kind of figure on that is complicated. Had the bank continued to slide into majority state ownership, the shares would have been worth, in effect, nothing at all. Fairfax's purchase puts a value on the bank of c. €5bn (down from €18.8bn at peak), and does so through a relatively normal share purchase transaction, where the government has not also been giving additional guarantees, so it's effectively a market valuation of the bank simply as a business.

On the other hand, we can say that since, in effect, the government has now paid €4.5bn for 15%, which values BoI at €30bn, a good deal more than the valuation at peak, it will necessarily make a loss on the sale of its remaining stake. If it sells at roughly the same price as in the Fairfax deal, the State would recoup only €714m of that €4.5bn - a total loss of €3.8bn.

That loss will be reduced somewhat by the State's share of the profits of the bank (€214m in 2010), and by the fees payable by the bank for the ELG (€275m in 2010), so you might knock a billion off the loss if the figures are similar for 2011. So the State looks to lose maybe €2.8bn on the whole deal, assuming the share price doesn't change much.

Depending on how you view these things, the loans acquired from BoI by NAMA could be counted in addition to the costs outlined, but if the State makes a profit on those loans, then its forced acquisition of them from BoI should make the profits count against the costs.

TL;DR - in brief, then, yes, the state has lost money on the deal, and will likely lose most of the balance. Does selling the stake reduce the state's liabilities under the current guarantee? No. Would it have been better to hang onto the stake? On balance, no - the whole point of the expenditure on the banks was to make them normally functioning banks again, and, bar the ELG, this market transaction, while it values the bank at a quarter of peak value, marks BoI as nearly normal.*

Meh.

cordially,
Scofflaw

*for a bank, in the current set of crisis conditions, in Ireland, and so on - terms and conditions apply, Bank of Ireland is regulated by the Central bank of Ireland, and we all know what that's worth...

Tea drinker

is this not just a straight wealth transfer out of the country or at least away from the taxpayer, at a time when he they need to be stmulated to spend?
If the imf or whatever are loaning at 7% why take such a drastic measure in such short term?

Scofflaw

Tea drinker wrote: »

is this not just a straight wealth transfer out of the country or at least away from the taxpayer, at a time when he they need to be stmulated to spend?
If the imf or whatever are loaning at 7% why take such a drastic measure in such short term?

Not sure why it would be a transfer of wealth out of the country? Fairfax et al are paying money for some of the government's stake in BoI, so, compared to a position in which they didn't, the State is €1bn better off.

cordially,
Scofflaw

liammur

The government essentially screwed IL&P shareholders, gave AIB a good deal and government lost out on BOI.

BornToKill

The state is bound to lose money on all of these deals. That's just the way it is. It stepped in to support the banks because no-one else would and because otherwise they would have collapsed. It has now largely exited the BOI position it was obliged to assume and the loss is quantified. Neither AIB nor ILP could meet the capital requirements they were required to meet by the central bank and the state was obliged to take shareholdings in them.

It is extremely unlikely that the state will ever be able to exit those shareholdings at a profit but that amounts to the cost of keeping the banks open and getting them back to normal. Shareholders have lost out all right but don't confuse cause and effect. They have lost out because they invested in businesses which followed flawed business models which ultimately failed spectacularly.

liammur

BornToKill wrote: »

The state is bound to lose money on all of these deals. That's just the way it is. It stepped in to support the banks because no-one else would and because otherwise they would have collapsed. It has now largely exited the BOI position it was obliged to assume and the loss is quantified. Neither AIB nor ILP could meet the capital requirements they were required to meet by the central bank and the state was obliged to take shareholdings in them.

It is extremely unlikely that the state will ever be able to exit those shareholdings at a profit but that amounts to the cost of keeping the banks open and getting them back to normal. Shareholders have lost out all right but don't confuse cause and effect. They have lost out because they invested in businesses which followed flawed business models which ultimately failed spectacularly.

They certainly will lose badly with AIB. €20 bn and paid 14c per share.
IL&P, they will certainly make a profit here. They have put in €2.7 bn, are due €1bn+ from sale of Ir life, and 800 mln from bondholders.
Court cases are going ahead tho, as shareholders were screwed, 1 has been settled out of court, and the other is on the 26th.

No one can understand how on earth they paid AIB shareholders more.

BornToKill

liammur wrote: »

IL&P, they will certainly make a profit here. They have put in €2.7 bn, are due €1bn+ from sale of Ir life, and 800 mln from bondholders.

Even if, and it's a big if, those numbers eventually prove accurate, I can't see how gettin €1.8bn back from an investment of €2.7bn amounts to a profit. The PTSB part of the business is loss-making on account of the proportion of fundamentally unprofitable tracker mortgages. While I personally can't see the case for the shareholders, I'm sure the courts will determine the issue in time.

liammur

BornToKill wrote: »

Even if, and it's a big if, those numbers eventually prove accurate, I can't see how gettin €1.8bn back from an investment of €2.7bn amounts to a profit. The PTSB part of the business is loss-making on account of the proportion of fundamentally unprofitable tracker mortgages. While I personally can't see the case for the shareholders, I'm sure the courts will determine the issue in time.

The profit will come in a few years, as the bank is expecting to return to profit by 2013. This will be floated on the market in years to come.

€4bn needed, the government puts in €2.7 bn and takes 99.8% control. Seems a bit outrageous.

BornToKill

No, IL&P needed €4bn. The state put in €2.7bn with the residual to come from the sale of Irish Life and from subordinated bondholders. It'll be a long wait to get that €2.7bn of taxpayer money back from PTSB, A very long wait.

liammur

BornToKill wrote: »

No, IL&P needed €4bn. The state put in €2.7bn with the residual to come from the sale of Irish Life and from subordinated bondholders. It'll be a long wait to get that €2.7bn of taxpayer money back from PTSB, A very long wait.

The key point is, that €2.7bn is NEVER needed. Unlike the other banks, that money is not lost. Hence, the court cases. The state isn't putting up 99.8% of the money so under any rules should not be taking 99.8% of the company. Now if the bank was going to lose the €2.7 or €2.8 bn, then it would be a different matter, but it's losses are expected to be a few hundred million.
________________
BAILED-out Permanent TSB is on track to turn a profit by 2014, the Government has told the European Commission.
The claim was made in a restructuring plan sent to Brussels at the end of July, around the same time as the bank got €2.8bn of state support.

Duke Leonal Felmet

It represents a small vote of confidence in the Irish banking sector. Who here, would have seen it happening a year ago? I think the loss is worth that. Of course, I know most won't agree and respond with gibberish.

Gib away.

BornToKill

If the IL&P shareholders were so convinced of an underlying and unrecognised value in the company they could simply have put in more of their own money. That would have avoided all of these problems. They didn't though, because no-one knows when and if PTSB will return to profit. As I said though, the courts will decide it.

Duke Leonal Felmet

BornToKill wrote: »

If the IL&P shareholders were so convinced of an underlying and unrecognised value in the company they could simply have put in more of their own money. That would have avoided all of these problems. They didn't though, because no-one knows when and if PTSB will return to profit. As I said though, the courts will decide it.

But they did not require recapitalisation until these ludicrous fantasy stress tests. They did not seek public funds. They did not ask for them. They had this 4bn imposed on them because of the state of neighbouring banks. But you seem to be an expert on this subject, so how about you explain ( in detail, no waffle) why:

a) They cannot return to profit in two years, as projected.

b) Why the capital imposed, incl the additional 600m sweetner, was appropriate for tsb

c) Why a loan to deposit ratio of 122% is feasible for any functioning bank

I think they were hard done by, tbh. They were one of the most prudent banks in the boom, did not lend to any developers and took part in very little commericial lendinng, and now they are being tainted with the bad decisions of Anglo, BOI and AIB.

You need to ask yourself this. If you ran a bank when the economy is going again, what is the incentive to be prudent, when this happens?

Think about it for a while before answering.

liammur

BornToKill wrote: »

If the IL&P shareholders were so convinced of an underlying and unrecognised value in the company they could simply have put in more of their own money. That would have avoided all of these problems. They didn't though, because no-one knows when and if PTSB will return to profit. As I said though, the courts will decide it.

You have no experience in this area with a comment like that.

As Duke points out, €4bn is massive by most companies standards. This money will never be called upon. Shareholders didn't want all of the money going in, but who has €4bn to put in? The state took advantage of the situation which in the spirit of things was very poor form when the state itself is depending on Europe.
So why the Irish government took 99.8% of the company and paid AIB shareholders more, warrants an inquiry imo.

The court won't decide things, because like in the previous case, there will be out of court settlements and we won't hear what the settlements were.

BornToKill

Duke Leonal Felmet wrote: »

But you seem to be an expert on this subject

liammur wrote: »

You have no experience in this area with a comment like that.

Its either one or the other, gents. Anyway, I have been thinking about the matter for a while and as I was doing that I see the State put another €1.3bn into buying Irish Life so IL&P now has gotten €4bn off the taxpayers and meets the requirements set under the PCAR/PLAR.

You can dispute the figure of €4bn but that's what emerged from the BlackRock conducted tests. Equally, you can dispute the appropriateness of bank loan to deposit ratios being set at 122.5% but thats something you'll have to take up with the Troika rather than me. In fact, I think a group of shareholders has gone to the High Court challenging the re-capitalisation of IL&P so it'll be interesting to see what comes of that.

I haven't seen the PTSB restructuring plan so I can't comment on whether or when it can be expected to return to profitability. I would imagine that if it is to be profitable in the forseeable future then moving the tracker book to IBRC or elsewhere will be necessary so as to take those recurring losss off the books. Its hard to see how profitability could otherwise return absent this kind of restructuring given that this bank - very foolishly in my opinion - completely mismatched its funding and its lending. I just don't see the prudence you claim to see. Even if we say that they were less imprudent than Anglo, INBS and AIB that really isn't saying a lot.

liammur

BornToKill wrote: »

Its either one or the other, gents. Anyway, I have been thinking about the matter for a while and as I was doing that I see the State put another €1.3bn into buying Irish Life so IL&P now has gotten €4bn off the taxpayers and meets the requirements set under the PCAR/PLAR.

You can dispute the figure of €4bn but that's what emerged from the BlackRock conducted tests. Equally, you can dispute the appropriateness of bank loan to deposit ratios being set at 122.5% but thats something you'll have to take up with the Troika rather than me. In fact, I think a group of shareholders has gone to the High Court challenging the re-capitalisation of IL&P so it'll be interesting to see what comes of that.

I haven't seen the PTSB restructuring plan so I can't comment on whether or when it can be expected to return to profitability. I would imagine that if it is to be profitable in the forseeable future then moving the tracker book to IBRC or elsewhere will be necessary so as to take those recurring losss off the books. Its hard to see how profitability could otherwise return absent this kind of restructuring given that this bank - very foolishly in my opinion - completely mismatched its funding and its lending. I just don't see the prudence you claim to see. Even if we say that they were less imprudent than Anglo, INBS and AIB that really isn't saying a lot.

I think the government has put in as much money as possible into IL&P to ensure shareholders get nothing. They have increased the cost of the state guarantee etc to try and make the company look worse than it is. A lot of the money the government has set aside for losses will never accrue imo.
______
IL&P director lashes recapitalisation

By Vincent Ryan
Thursday, April 05, 2012
The newest member of the Irish Life & Permanent has accused the Minister for Finance, Michael Noonan, of acting improperly and trying to get his hands on the company’s profitable insurance business.
Irish Life and Permanent Group Holdings (IL&P) yesterday confirmed the appointment of Piotr Skoczylas as a non-executive director to its board.

A vocal critic of the Government’s recapitalisation of IL&P, Mr Skoczylas took a High Court challenge to the Government’s recapitalisation of the company.

Mr Skoczylas remains opposed to any Government involvement in IL&P. He said he believes the recapitalisation of the bank was an illegal move. He said: "The recapitalisation is, in my view, an illegal act that needs to be opposed.

"The minister for finance wants to put his hands on a profitable part of the company, the insurance business. There is no justification for that. The company is and always will be a viable business."

Mr Skoczylas is managing director and fund manager at Scotchstone Capital Fund, which bought €200,000 worth of IL&P shares in 2010. He has criticised the coverage of the latest annual report by IL&P. The coverage focused on the €1.4bn set aside by IL&P as a provision to cover losses on their mortgage book.

"There are a lot of misconceptions about the company in the public and in the media. The company made provisions for loan losses, essentially in the residential area; €1.4bn provision was made but the actual realised loss was €3m. Provisions are 46,000% larger than the losses," he said.

Mr Skoczylas accused the media and reporting in relation to the bank of bias in the Government’s favour.

"There is a bias towards the Government to an absurd level through coercion or intimidation," he said.

Mr Skoczylas also said that, irrespective of whether the rest of the board agreed with his views or not, having a dissenter on the board can only improve debate.

"One last thought: if all of the directors are in agreement, the consensus will form a powerful voice from the board. If there isn’t consensus, we’ll have healthy debate that will lead to better decisions," he said.


Read more: http://www.irishexaminer.com/business/ilp-director-lashes-recapitalisation-189513.html#ixzz1sqyLVnhV

beeftotheheels

What's interesting today is that the acquisition of Irish Life has brought NAMA on balance sheet per Eurostat which has lead to an upwards revision of our deficit.

http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-23042012-AP/EN/2-23042012-AP-EN.PDF

liammur

beeftotheheels wrote: »

What's interesting today is that the acquisition of Irish Life has brought NAMA on balance sheet per Eurostat which has lead to an upwards revision of our deficit.

http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-23042012-AP/EN/2-23042012-AP-EN.PDF

Well, you would expect that to happen, and when it's sold it will go down.

BornToKill

beeftotheheels wrote: »

What's interesting today is that the acquisition of Irish Life has brought NAMA on balance sheet per Eurostat which has lead to an upwards revision of our deficit.

http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-23042012-AP/EN/2-23042012-AP-EN.PDF

Not yet - its a reservation at the moment.

BornToKill

liammur wrote: »

I think the government has put in as much money as possible into IL&P to ensure shareholders get nothing. They have increased the cost of the state guarantee etc to try and make the company look worse than it is. A lot of the money the government has set aside for losses will never accrue imo.
______
IL&P director lashes recapitalisation

By Vincent Ryan
Thursday, April 05, 2012
The newest member of the Irish Life & Permanent has accused the Minister for Finance, Michael Noonan, of acting improperly and trying to get his hands on the company’s profitable insurance business.
Irish Life and Permanent Group Holdings (IL&P) yesterday confirmed the appointment of Piotr Skoczylas as a non-executive director to its board.

A vocal critic of the Government’s recapitalisation of IL&P, Mr Skoczylas took a High Court challenge to the Government’s recapitalisation of the company.

Mr Skoczylas remains opposed to any Government involvement in IL&P. He said he believes the recapitalisation of the bank was an illegal move. He said: "The recapitalisation is, in my view, an illegal act that needs to be opposed.

"The minister for finance wants to put his hands on a profitable part of the company, the insurance business. There is no justification for that. The company is and always will be a viable business."

Mr Skoczylas is managing director and fund manager at Scotchstone Capital Fund, which bought €200,000 worth of IL&P shares in 2010. He has criticised the coverage of the latest annual report by IL&P. The coverage focused on the €1.4bn set aside by IL&P as a provision to cover losses on their mortgage book.

"There are a lot of misconceptions about the company in the public and in the media. The company made provisions for loan losses, essentially in the residential area; €1.4bn provision was made but the actual realised loss was €3m. Provisions are 46,000% larger than the losses," he said.

Mr Skoczylas accused the media and reporting in relation to the bank of bias in the Government’s favour.

"There is a bias towards the Government to an absurd level through coercion or intimidation," he said.

Mr Skoczylas also said that, irrespective of whether the rest of the board agreed with his views or not, having a dissenter on the board can only improve debate.

"One last thought: if all of the directors are in agreement, the consensus will form a powerful voice from the board. If there isn’t consensus, we’ll have healthy debate that will lead to better decisions," he said.


Read more: http://www.irishexaminer.com/business/ilp-director-lashes-recapitalisation-189513.html#ixzz1sqyLVnhV

If this is intended as to be a response to my post, it is not adequate. I think we already know that neither you nor Mr Skoczylas think that IL&P needed €4bn in capital. Yet that is what the stress tests conducted by BackRock for the Central Bank showed was necessary. The government stepped in to provide that capital only when no private investment, despite the best efforts, was forthcoming. This clearly was a very reluctant investment and not expropriation of shareholders. If you want to argue the contrary I think you need to establish that the stress test were wrong and demonstrate a basis for that.

liammur

BornToKill wrote: »

If this is intended as to be a response to my post, it is not adequate. I think we already know that neither you nor Mr Skoczylas think that IL&P needed €4bn in capital. Yet that is what the stress tests conducted by BackRock for the Central Bank showed was necessary. The government stepped in to provide that capital only when no private investment, despite the best efforts, was forthcoming. This clearly was a very reluctant investment and not expropriation of shareholders. If you want to argue the contrary I think you need to establish that the stress test were wrong and demonstrate a basis for that.

On the contrary, I believe the government was only too happy to 'step in'. A bit like it would only be too happy to step in and pump some money into Ryanair that will never be called upon.

Now, it's true they didn't want to put so much into AIB, €20bln+, but they did think AIB shareholders were entitled to more than IL&P.

BornToKill

liammur wrote: »

On the contrary, I believe the government was only too happy to 'step in'. A bit like it would only be too happy to step in and pump some money into Ryanair that will never be called upon.

Now, it's true they didn't want to put so much into AIB, €20bln+, but they did think AIB shareholders were entitled to more than IL&P.

Yes, I think we have established your beliefs some time ago. What I am asking though is you explain the basis for those beliefs. I see no evidence that the State was only too happy to have to go and borrow money in order that IL&P could meet the capital requirements.

Additionally, you are adamant that these funds will not be called on. If private investors shared your confidence surely they would have put up the money? IL&P itself acknowledges that the Irish Government was the only source of funding available to it. You can also see for yourself that IL&P made provisions of €2.3bn last year which is still only 6.4% of the gross loan book. Given the dire situation with residential mortgages this seems quite optimistic, to say the least.

liammur

BornToKill wrote: »

Yes, I think we have established your beliefs some time ago. What I am asking though is you explain the basis for those beliefs. I see no evidence that the State was only too happy to have to go and borrow money in order that IL&P could meet the capital requirements.

Additionally, you are adamant that these funds will not be called on. If private investors shared your confidence surely they would have put up the money? IL&P itself acknowledges that the Irish Government was the only source of funding available to it. You can also see for yourself that IL&P made provisions of €2.3bn last year which is still only 6.4% of the gross loan book. Given the dire situation with residential mortgages this seems quite optimistic, to say the least.

No one would put money in, and I wouldn't either. They keep moving the goalposts. Let's just say you put in €10K if there was a RI. Then, at the drop of a hat, you could be told new stress tests are required.

But now that the government owns them it will be quite interesting to see if new stress tests are required. Funnily enough, I should think there won't be.

BornToKill

liammur wrote: »

No one would put money in, and I wouldn't either. They keep moving the goalposts. Let's just say you put in €10K if there was a RI. Then, at the drop of a hat, you could be told new stress tests are required.

But now that the government owns them it will be quite interesting to see if new stress tests are required. Funnily enough, I should think there won't be.

Whether or not new stress tests are required will depend on what happens next to the economy and especially what happens with mortgage arrears. It is also dependent on what happens in the wider Eurozone. Stress tests do not cause banks to lose money. Stress tests just quantity what scale of losses the banks are nursing and can expect to see down the line. It doesnt matter who owns the bank - the losses will be the same.

liammur

BornToKill wrote: »

Whether or not new stress tests are required will depend on what happens next to the economy and especially what happens with mortgage arrears. It is also dependent on what happens in the wider Eurozone. Stress tests do not cause banks to lose money. Stress tests just quantity what scale of losses the banks are nursing and can expect to see down the line. It doesnt matter who owns the bank - the losses will be the same.

That's correct, but I suspect they will be far less inclined to carry out any more stress tests now. However, if there was a smash and grab raid to be had, I'd say very severe stress tests may be needed.

knockbran

Anybody know what became of the challenge to the recapitilization by certain shareholders. It was going through the courts in the spring, and nothing since about the time of the referendum