[30 second version – the Government has today sold €1bn of its stake in Bank of Ireland in a deal first announced at around 11am this morning where the stake to be sold was put at €500m to €1bn. This is the first the public has known of the sale. It’s a very large State transaction, and there has been little if any political oversight. There is now reporting that the full €1bn has been sold, but we don’t yet have further details including price]
You would have thought that the September 29th, 2008 bank guarantee would have taught us a lesson – a rushed overnight decision which has wrecked catastrophe on this State, but no, we – or rather, “they” – still make truly colossal decisions and the rest of us learn about them after the event. This morning at 11am, we learned that the Government was selling part of its investment in Bank of Ireland.
In July 2011 the State purchased €3 billion in Contingent Capital Notes in these banks (€1.6 billion in AIB, €1 billion in Bank of Ireland and €0.4 billion in Permanent TSB) as part of the recapitalisations. These Contingent Capital Notes are subordinated Tier 2 debt instruments with a five year and one day maturity and are convertible into ordinary shares in the event of the bank’s Core Tier 1 capital ratio falling below 8.25%. The Notes carry a fixed mandatory interest rate of 10% of the issue price payable annually. The first of these payments which total €300.273 million was made to the Exchequer in July 2012.
What was announced this morning was that negotiations “had concluded” on the sale of the €1bn of Contingent Capital Notes in Bank of Ireland. Apparently some un-named banks were handling the sale and this morning, all we were told was that between €500m and €1bn would be sold. This afternoon, the Irish Times, not the Department of Finance, is reporting that €1bn of the notes have been sold, but there is no further information, the buyers, the price, or really how we know that now was an appropriate time to sell and that we got a good price that reflects the 10% annual interest rate in a State which is otherwise paying less than 5% for long term borrowing.
The sale will come as news to most of the 166 TDs in the Dail.
When did we allow democracy and political oversight of State decisions to deteriorate to this extent?
There will be updates and analysis here as we get any more information.
UPDATE: 9th January, 2013. Snippets of detail continue to leak out. Minister for Finance Michael Noonan has issued a statement welcoming the sale, indicating the sale price was €1.01bn plus accrued interest which will be about €50m from June 2012 to January 2013. It is being claimed that Ireland made a profit of €10m on the disposal. You can watch Minister Noonan’s statement on video here. Bank of Ireland has issued a statement on the mechanics of the transfer to the new owners here. There were bids totalling €4.8bn for the €1bn of notes.
NAMA Wine Lake 
Ah sure isn’t it a bit of good news for the lads. It’ll be reported on Six-One as Ireland being…
“back in the financial markets”,
“another step on the road to solving Ireland’s banking crisis”,
“signs of the market showing confidence in Ireland”,
“another step on the road to recovery…”
etc. etc. etc.
No matter that people (incl. 166 of them in Leinster House) don’t understand what it really means – so long as a positive spin can be put on it.
Get your optics right and the rest will follow… (won’t it???)
if BoI purchased, good deal for them. When all’s said and done it’s probably a good deal for the state as it will help unwind the 15% shareholding further (as long as they are not bailed out again).
Having at least one solid bank with geographic penetration is good, AIB are not at the races. Will there be a competitive benefit to customers – don’t make me laugh.
Correction: The Government is deliberately accepting a loss on its investment in BoI.
Though not perhaps to all.
I am reminded of the nationalisation of the Great Southern Railway company in 1945. The plan was kept very quiet right up until the very end when the company was amalgamated into CIE. A lot of shareholders felt they had been deceived by the Minister at the time, as well as the company chairman, who had denied the deal was taking place for months beforehand.
However, one very notable shareholder had no cause for complaint. John Charles McQuaid, the Archbishop of Dublin, was among three very lucky investors who were given information on the impending deal inside somewhere by the chairman. As Elaine Byrne puts it, the Archdiocese had a good war.
I wonder who is having a good war at the moment?
When did we ever allow them to be otherwise?
It’s a good deal for someone but it won’t be the taxpayer I bet
The volume traded in boi shares has been way above average this week and their price has increased by over 10%. Then on the day of the announcement the price doesn’t move at all; so much for the share price reflecting all publically available information.
The price was 1.01bn plus interest. How does that compare to the sale of subordinated bonds in December?
@BrianF, the Contingent Capital Notes are different in nature to the €1bn of 3-year 3.2% bonds sold by BoI in November 2012, and are considered far riskier. That said, we still await a raft of details on this sale, to see how the custodians of our painfully-funded stakes in the banks decided this was the right time to dispose of the stake, and the steps taken to ensure the price was maximised.
@namawinelake. There was a sale of €250m subordinated bonds in December with a 10% coupon.
@BrianF apologies, I see that now.
The CCNs sold yesterday “The Notes have a maturity of July 2016 and an annual coupon of 10 per cent. If the Core Tier 1 /
Common Equity Tier 1 capital ratio of Bank of Ireland (as calculated under the terms of the Notes)
falls below 8.25 per cent, the Notes automatically convert to units of ordinary stock. The conversion
price at which the Notes would convert is the volume‐weighted average price of the ordinary stock
over the 30 days prior to conversion, subject to a minimum conversion price of €0.05 per unit. ”
The subordinated bonds sold in December 2010 were 10-year 10% yielding bonds of the type that has been haircut severely in recent times by Bank of Ireland
http://www.irishtimes.com/newspaper/finance/2012/1213/1224327803344.html
This was the “sale of state assets” intended to fund the Tuam Gort Motorway in 2013 and provide seed capital for the New Agenda program. If they get the other €6bn off they have fully funded the New Era program, Broadband and Irish Water and with a few quid left to pay down debt. Referred to here > http://www.galwaynews.ie/29180-motorway-will-only-get-go-ahead-when-state-sells-crown-jewels
The orginal and primary purpose of the NTMA is to sell Irish government debt on behalf of the state.
Yes the sale of CoCos are far more complicated than the run of the mill goverment debt.
But the NTMA have a couple of hundred professionals employed to sell debt and contiously assess market sentiment, I would have far more confidence in their judgement that that of the 166 TDs.
The sale was conducted by an open market transactions common in capital markets with bids of €4.8bn received, can’t really see the problem.
@Dreaded_Estate,
You may be right, but when you say
“The sale was conducted by an open market transactions common in capital markets”
What is your basis for saying that, presumably it’s the press release yesterday from the Department of Finance?
What other similar sales are you familiar with?
Do you think that bidders had access to equal information?
How long do you consider potential bidders need to consider the investment before making a bid?
How well was the sale pre-marketed, and what is your basis for saying that?
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
Today we find out that this is costing us 67 million a year and is a pr exercise for the BOI, looks like a very dear pr exercise for a failed private bank when will these clowns stop an look at what they are doing to the people of our country
@Dreaded_Estate
+1
The DoF said the State was approached “late last year” by investment banks on the possibility of buying the notes. I know that won’t satisfy everyone who are concerned the notes were sold below potential market value but I’d also have a little more faith in the NTMA than others.
@Rob S, it tends to be good practice to combine trust with verification, and no doubt in coming days, we will get better detail of this transaction.
Of course the state was approached about buying the notes, they have a coupon of 10%, an excercise price of e0.05 if converted and whilst risky, BOI is the star pupil in the Irish banking sector. I cannot believe this was sold, this was making money for Ireland e100m pa. Yet again a crazy decision
@TIHFG, so if the notes were worth so much, why was the top open book bid just €1.01bn apparently? Was there a flaw in the selling process?