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FINANCE MINISTER MICHAEL Noonan may enforce losses of up to 100 per cent on Bank of Ireland’s junior bondholders.
In a statement issued this morning, Noonan said he is “considering the possibility of applying for a Subordinated Liabilities Order (SLO)” to generate cash for Bank of Ireland.
Such an order would effectively burn the holders of the subordinated debt and wipe out the remainder of the bank’s recapitalisation bill.
Noonan said the SLO could write down each of the junior bonds by up to 100 per cent, raising up to €350 million and ensuring the bank would meet its capital requirements.
The aggressive move, if undertaken, would aim to raise the core tier 1 capital for the bank ahead of the deadline on 31 December.
As a result of the 31 March stress tests, the bank was required to raise €4.2 billion in capital before this date. Since then, BoI has generated €3.85 billion through a variety of methods, including State aid, private capital and liability management exercises.
The Minister said that he is considering using the powers available under the Credit Institutions (Stabilisation) Act 2010, which allows for the order, because the bank has already received “substantial financial support” from the State.
However, he added that no decision has been made on the matter and a consultation process with the Central Bank is now underway. Submissions from interested parties are being gathered by the Department of Finance.
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Don,t know much about this but I say do it. And if it works keep doing it.
Junior Bondholders? He’s going after kiddie’s savings accounts? Christ that man is evil!
It’s nothing more than a token to satisfy the unwashed masses.
NOW they are considering it?! Too little too late damage is done. makes you wonder how bad things are though if they are open to the idea suddenly.
Pre-budget spin? I’ll believe it when I see it.
So the well is now completely dry and this lip service is thrown at us. Horse/Bolted
Only in the crazy world of banking could not paying your debts be considered a method of raising funds!
The problem with bondholders is that they aren’t always the likes of Roman Abramovich or guys dressed like the Monopoly Man, a lot of the times they are pension funds, charities and other non profit organisations. When banks collapsed in Iceland a lot of the likes of these got badly hit
It would be great if it was a case where they could pick and choose the wealthy speculators but check with your pension fund manager to see where your money is invested, there’s a fair chance some is in bank bonds.
Excellent point. it’s not as straightforward as a lot of people seem to think…
I’ve had this conversation with people on here before, and more so IRL … the “we are all bondholders now” argument.
Personally, I don’t buy it. Firstly, bond dealing is not a charity, there is plenty of scope in the obscene profits made by the investment vehicles and banks, as well as the obscene remuneration “earned” by senior staff to absorb a haircut without significantly depleting the funds.
It’s a failed investment, the investment house should be accountable – yet again, the markets exist in a world without consequences, while the poor, the vulnerable and the sick pay the price, through no fault of their own.
Also, while pension funds in themselves may seem benign, the money has been put to some pretty dubious uses, particularly in the 80s when the robber barons – James Goldsmith, Tiny Rowland, Michael Milken and the likes – convinced fund managers that their junk bonds were a safe investment, and tapped the funds to asset strip the industrial base, extracting phenomenal profits for themselves, but relatively modest returns for the funds.
It really isn’t that straightforward.
Granted, I wouldn’t like to see bondholders burnt entirely, for this reason, but I think that haircuts should be imposed wherever possible.
Investments are gambles they entail risk. Investment managers assess this risk and invest accordingly, in doing this they do not take account of origin of these funds they might just as easily be the profits of a drug cartel as the capital investment of a registered charity. To my mind it is irrelevant where the money comes from and it is certainly not the responsibility of the citizens of any state to cover off these funds by the recapitalization of banks. The prime responsibility of any democratically elected government is the welfare of the state and it’s citizens and not the welfare of anonymous investors or fund managers of ‘investment vehicles’ who might see a handy profit in cutting corners and making dodgy deals with bond agents.
I liked into this when the big anglo.payout was due last month and pension funds are miniscule in the scheme of bond holders. most of the bondholders are other banks and depressingly the ultra rich. Will hunt out the link.
Liked obviously not liked….typo. This is the article but it deals with the anglo bondholders, you can be sure they are all the same, its only the banks names that are different.
http://www.golemxiv.co.uk/2010/10/who-are-the-bond-holders-we-are-bailing-out/
Argh…looked, not flippin liked. Jesus.
Yeah. Saw that list too at the time.
I wonder if we could get a list of their contributions to the Christian Democratic parties of Europe our own FG included?
Thanks for the link.
“This ‘widows and orphans’ reason why the Bond holders must not take any loss, was trotted out to bolster an earlier reason that started to wear thin, which was that if Ireland pissed off the bond holders then they would refuse to ever deal with Ireland ever again and Ireland would never be able to borrow ever again, ever, and everyone would die in penury, friendless and cold. That first reason started to look like it might not hold, when the Germans started to talk rather too openly about how it might be best for all, them especially, if Greece did ‘re-structure’ its debts (default on its bond holders – a teeny bit). When no one said it would be the end for Greece if it defaulted on the mighty bond holders, Ireland’s ‘the sky will fall in’ reason for not asking its bond holders to share the pain started to look like what it was, a politically motivated lie. Thus the grannies and orphans had to be hurriedly wheeled out.”
Innit.
I have to say, though, I’m pretty surprised at the writer’s findings – would’ve thought that pension funds would form a significant part of the asset base of any large investment vehicle. If he/she is correct, then it would imply that the collected pension contributions of tens of millions of people are still dwarfed by the accumulated wealth of “the markets”.
Like you Niall I’m sick of hearing this stuff about some German widow who toddles off to her local bond broker/bank to see how her nestegg is doing to be told that the drink addled Irish pissed it up against the wall!
Even if she does exist to hell with her, tell her to take it up with her fund manager and prosecute him for incompetence if necessary. If investment managers, bond brokers, or whatever capitalized banks in Ireland to act recklessly, which they did, then it’s tough all round and the depositor loses the investors takes a shunt and the world keeps spinning. It’s not our problem. Dozy
Government appointed regulators ride into the sunset with full saddle bags and Paddy picks up the tab. Pity we didn’t spend more of their fools gold when we had the chance.
Sorry Neill. It looks like I called you ‘dozy’ at the end of the second last para. Stiff little fingers!!
About time. Keep going!
This is just a softener per budget.
It looks very much as if this government is incapable of making decisions, at least not without leaking possibilities into the public domain and watching for reactions. Of course, that is only after checking in with our true rulers in the EU. Why the pretence that our reactions matter? We are only the electorate and the people that will pay the price!
Right, but then who in their sane mind would ever lend money again to BoI in the future?
John, who’s getting burnt with this legalized stealing exercise is small fish like you and me who were so naive to save money instead of spending it all like the rest, and entrusted them to a reputable institution buying their bonds.
This is exclusively an act of window dressing for BoI’s balance sheet to make it look better than competitors, who weren’t rescued by sovereign states with people’s money for generations to come! Senior bond holders will get their money back to the last penny!
These days it’s more profitable to have a lavish lifestyle, be part of a broke generation, and waiting for someone to rescue you cause they have to if they want to keep this economy going.
NOONAN – vot ave ve zold you about zis nonsense before? You vill zo as you ve sell you!
Hi Giovanni,
The move – if it happens – would save the Irish State money as the Government would not have to provide the €350 million needed so the bank reaches its capital requirements.
The bank needs to ensure it has raised €4.2 billion by 31 December and is currently €350 million off that target. If it is not raised by other means (such as this SLO), then the Govt would have to step in.
The sale which you mentioned helped raise a large chunk of that €4.2 billion but was not sufficient for the bank to reach its target.
Hope that helps.
What are you waiting for? A light?
I thought the state had already sold off a large stake in BoI?
How this move is a saving for the Irish state, which now apparently only holds a minority stake in the bank, is unclear to me. Anyone?
The roof rhe roof the roof is on fire !!
The bank bailout has failed. ‘Banks collectively lost one third of their entire deposit base amounting to a massive E300 billion.’! – Dan O’Brien Irish Times monday.
http://www.irishtimes.com/newspaper/ireland/2011/1121/1224307907549.html
Smoke blowing but it will get the necessary protracted media coverage of the ‘will he, won’t he’ sort.
mull away noonan! we will just keep paying our levies and our stealth taxes and working more for less while you dither. what an insult.
It’s a step, the bond holders should of Been excised first as bonds are a liable asset. In conjunction with this, the feasibility of state aid could be considered however the problem lies where the private bond holders play a central role in state affairs!
Do it! Or we’ll spend billions of our taxes and the whole thing will go down the pan anyway! What we’re doing is this, plain and simple, we’re paying off the gambling debts of the the wealthy before we pull the plug on the euro. FACT
He mulled and he mulled….then he mulled a bit more….then decided…’nah…wouldn’t want to piss the Germans off’
Not sure it’s worth doing this now. Had we stood up to the ECB and burnt the senior bond holders then we would achieved something. Burning a ‘mere’ EUR 350 million will achieve very little saving in the scheme of things but will hugely prolong the time it takes before our banks can return to the markets, meaning it will be a long time before they start lending again. To reiterate what’s been said above, horse, bolted.
Noonan will have to get permission from the fourth reich to pull this off I imagine!
Ok ! I really do not understand this very well but it seems to me that The government paid off the (major) bond holders and now this bank are not going to pay the Junior bond holders to make their balance sheet look better……. So who will suffer now ?
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