“You wanna hear a great story”
So starts the Bloomberg TV interview with David Tepper, an American hedge fund manager and the founder of Appaloosa Management. Zerohedge has the video here, though the focus of the Zerohedge blogpost is not what we’re interested in here. David tells us about his dealings with Bank of Ireland subordinated bonds, from about 15:00 into the video and here’s the abridged transcript
“We invested in the Bank of Ireland… and we bought their bonds, subordinated bonds…They [BoI] wanted to ‘cram us down’ … So we took them to court.. We were gonna go into the English and Irish courts to fight the Bank of Ireland, and fight the Irish Government for that matter…We finally won at the beginning of this year… The debt was trading at 40/50 cents…..So the Bank of Ireland this year, goes and issues a new issue, of the same debt…. a month and a half ago….the debt is now trading at 115..The only reason it is worth buying, is because we fought it, and we won.”
He also says that he was willing to invest in the equity of Bank of Ireland at what appears to be the same time as Minister for Finance Michael Noonan sold 35% of the bank to the consortium of North American investors including Wilbur Ross. It seems as if that deal might benefit from some further scrutiny to see exactly how good it was for the country which has shoveled €4.7bn gross into Bank of Ireland.
But the interview also begs the question over how haircuts on subordinated bondholders were arrived at, and when Minister Noonan was quizzed on this last week, he merely said “I understand that these transactions were commercial decisions for the Institutions following consultation with their financial advisors”
So how effective was the subordinated bondholder buybacks in 2008-2012 when €26bn of subordinated bonds were redeemed for €12bn and there were total haircuts of €14bn. Could we have achieved billions more?
[See here for details of the burning of subordinated bondholders]
Point your missing about this is that the exchange was a debt for equity swap. He didnt decide to ask for equity from BKIR because Wilbur Ross had invested, he was burned like many other hedge funds who participated in the trade because he had expected a much higher equity return for the 40cents sub debt he acquired.
Everyone who participated in that trade didn’t know that Wilbur Ross was lurking in the background with a fresh equity injection of real money and that’s what skewered the amount of equity the sub-debt holders were offered in return for their bond.
It is a false illusion to believe Appaloosa Management would have offered a higher price than Wilbur Ross for equity in the bank. Zero chance of that being the case. He wanted more equity for a smaller price and that’s why he took the Bank to Court to ensure his bond he bought at 40 cents would be paid out at par.
The real crime in all of this is that Noonan never used the Credit Institution Stabilisation Act against Bank of Ireland, only for AIB,& PTSB. He had the power to coercively cram down the likes of Appaloosa, which they no doubt would have taken Irish government to court but Irish government may have one and also it would have meant that of the 50% or so of those note holders who didn’t participate in the exchange at the time, a significant proportion would have thus saving the state more money from the sub-debt cram down and also avoid Mr Tepper laughing about how much money the Irish taxpayer has spent honoring his risky trade that shouldn’t have paid off.
Unless you know every word in the financial dictionary this interview can be a bit daunting, yet it seems like a simple story of gambling, throwing shapes, and winning.
@ NWL
In your spare time (ha) you cold do worse than look at the work of Jer Thorpe (blprnt.com) who is trying to define (redefine) data visualization, though I doubt finance is his cup of tea. Much as I liked your awesome promissory note visual I think many of your posts could also use a schematic/diagram to take the need for liginuistic gynmastics out of comprehension.
Also @JK..skewered or skewed (maybe both?)
Speaking of haircuts linguistics and visuals
I’m not clear that there were any haircuts at all here. Mr Teller’s recollection seems to suggest that his company received the full amount due on the bond, or very close to it.
It would appear that existing holders of BoI debt, and by extension debts in all Irish banks, will now be receiving 100% of outstanding bond. No bondholders burnings, not even singeings it would seem. It appears the government has backed down big time in this case.
Saw that after Stephen Kinsella tweeted the link last night. That’s the way of Hedge Fund Managers I guess, so at least he told it how it is. Not my cup of tea, but his manner makes the lack of testosterone in our ‘Musterschueler’ lapdog politicians ever more obvious.
@DJ, Our politicians are led by National School teachers. It’s not just the fact that they were gelded at birth, it’s also the fact that they are completely out of their depth when they fraternise and negotiate with Wall Street fund managers and their ilk. Think Manchester United playing Castlebar Athletic.
With ya 100% there @wstt. http://www.tv3.ie/3player/show/41/58374/1/Tonight-with-Vincent-Browne
Excellent summary of the charade as always by Paul Sommerville on VB t’other night. It’s just before the papers’ review at the end of the clip so skip all the first bit.
@Dorothy, thanks, there is a transcript of Paul Sommerville’s contribution on that Vincent Browne show. Yes, interesting and damning stuff.
http://www.broadsheet.ie/2013/01/23/throwing-us-a-bone/
@nwl . Paul really ‘gets it’. DSE has a lot to blimmin’ answer for by putting Creighton in situ instead of him
Reblogged this on Machholz's Blog and commented:
This stinks and I,m not takling about Noonans socks!
@Dorothy, What would Paul have done armed with all his financial wisdom as an Independent TD rather than a government Minister? Would he have used his immense power to tell the Bank of Japan, Fed and ECB to end their QE programs and then would he instruct the ECB to continue to provide money to Irish depositors while he was engaging in unilateral debt restructring of Irish banks? Hmmm, so he says burn the bondholders and opposes QE. So Europe burns bondholders, doesn’t print any money and global capital markets adjust and we don’t go through Great Depression 2? Yeh Paul ‘gets it’.
@JK appears the great depression 2 has not exactly been totally averted for the more vulnerable and less well off in Ireland.
Anyone know which bofI bonds they bought-reason asking is if they were governed by Irish law or English/US-in other words were they dollar/sterling denominated.
Spain unemployment at 26% today too !
NWL has covered the ongoing litigation involving the ‘paddy cram downs’ in London and US-curious who the adviser was?
A little dated but good profile on ‘balls to the wall’….
“Sometimes,” he whispers, leaning across the table, “if someone is an asshole, like a waiter at a restaurant, I think, I could just buy this place and fire that guy.”
http://nymag.com/news/features/establishments/68513/
Or as one the housewife’s of ny memorably sings..money cant buy you class !
Here you go @iluvny….some video !
@NWL, Thanks for the photo of David Tepper. So that M. Noonan et al will recognise it in future. This is what a vulture looks like when he’s just eaten the prey!
@JK, We are going through the Great Depression 2! The current policies did not avoid it. All they did was ensure that it would last much longer because of the burden we and our children assumed needlessly. Private debt was placed on the shoulders of the taxpayer.
[...] video and song by Mick Blake dedicated to David Tepper, the American hedge fund manager and founder of Appaloosa Management whose involvement in Ireland’s economic downfall has only reached wider public scrutiny [...]