Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a498614

Injunction MP cries foul over Bank of Ireland bond cut

John Hemming, the MP who exposed Ryan Giggs’ super injunction, is fighting to help pensioners being forced to sell their Bank of Ireland bonds at a loss.

 
Injunction MP cries foul over Bank of Ireland bond cut

John Hemming, the MP who exposed Ryan Giggs’ super injunction in the House of Commons, has launched a campaign to help investors hit by Bank of Ireland’s decision to buy back its bonds for a fraction of their value.

Hemming is one of group of investors who bought a permanent interest bearing security (Pibs) from Bristol & West building society in 1991. The bond, which pays an interest rate of 13.375%, became Bank of Ireland’s responsibility when it bought Bristol & West in 1997.

Under the terms of proposals issued by the bank this week to raise €4.2 billion (£3.7 billion) these bondholders are being offered a 'haircut' of just 20% of their investments’ face value of £75 million, or the chance to swap the bonds for new shares worth only 40%.

Hemming, the Liberal Democrat MP for Birmingham Yardley, said the move was unfair to the bondholders, many of whom he believed were pensioners. 

‘There has to be a better way of treating the smaller investors,’ Hemming told the Financial Times. He cited the 2009 recapitalisation of Lloyds Bank which, although it hit bondholders, did not cause protests. ‘That was done in a way that didn’t hit people that much but it did involve burden sharing,’ he told the paper.

According to the FT, the bonds were trading at 35% of their value before Bank of Ireland’s announcement on Wednesday. Although this indicates the financial stress the bank is under it also suggests investors expected a better deal to emerge.

Bank of Ireland’s move has enraged some institutional investors who, according to Reuters, have formed the BOI Investor Committee and appointed a US legal firm to fight their case. ‘The bank’s LME (liability management exercise) is fatally flawed because it fails to respect the fundamental principle that creditors must be paid ahead of shareholders,’ the committee said in a statement reported by Reuters.

58 comments so far. Why not have your say?

Dibbeth

Jun 10, 2011 at 13:25

What is even worse, there has to be a 100,000 holding to get the 40% equity offer. This leaves a small investor like me with no option (at this time) other than to accept the derisory 20% cash, or if I do nothing, 1p per thousand. The literature sent by BoI has confused even some experienced investment managers so how are us "little people" expected to understand it. The Bank of Ireland/Irish government should hang their heads in shame at this action. This is stealing from the poor to give to the rich.

report this

P L

Jun 10, 2011 at 13:54

Funny I can't remember hearing these people complaining that it was so unfair that they were getting a 13.375% return when everyone else with deposit accounts was getting much much less.

The biggest mistake the Uk & Irish governments have made is by not consitently letting the investor accept the risks that they have taken on in buying the product. And yes I did lose money as a result of B&B and others - the only complain I have is that they should all have been allowed to sink/swim without interference.

If any mistakes have been made and should be rectified it should solely be related to whether or not the underlying risks with the product were properly explained - if not they should sue the sellers for compensation.

I'm sorry but you can't have your cake and eat it. If you want high returns you have by definition to take higher risk. Anyone who thinks otherwise is deluding themselves. It's about time the investing public woke up to this fact - and its about time the Governments stopped pretending there is such a thing as an absolutely no risk return - there isn't. The financial services industry also seriously needs to get their act together and get this message across rather than trying to peddle the lie of no risk high return.

report this

Paul Fenton

Jun 10, 2011 at 14:26

@P L

The 13.375 reflected the risk at the time of the issue and the price paid then varied. The majority of these are held by pensioners who bought at the time (many in certificate format). The price others have paid reflected the risk at the time.

No one is arguing about the risk though, the principles really at stake include:

- Shareholders (incl Irish Govt Pension Fund) are being protected even though they are junior to the bondholders

- The offer is designed to be almost impossible for the retail investor to pariticpate (yet this is a 90% retail issue)

- Pensioners are being expected to understand a 461 page offer document and respond within two weeks

From what I have read everyone understands the need for burden sharing, it is the draconian approach that has been used to upend the capital structure and protect insiders (whilst burning pensioners) that has got people worked up.

This by a Bank that requires the UK Post Office deposits it holds to stay in business? The FSA should look to revoke their banking licence....

report this

Tim K

Jun 10, 2011 at 14:36

Dibbeth you have an option. Don't accept the offer it clearly breaches many many rules and regulations and is not fit for a retail bond.

BKIR need 75% of holders to make the change to the terms to allow them to make your bond worthless. If 25% of people don't tender they are going to find it quite hard to change the terms.

I'm going to fight it and suggest you do to.

report this

Darron Preston

Jun 10, 2011 at 14:46

PL

This is not so much about the "risks", it is more about the nigh on illegal manner in which the Irish State is going about this.

At the core of the matter is the simple matter of capital heiracrchies ie the order in whcih creditors stand, with shareholders at the bottom and the different rankings of debts.

What is more "evil" is the manner in which the offer is being structured so that the vast majority of the holders of the PIBS (retail investors) will not be able to participate in the "better" option and will be forced to take the cash offer, That is, if they are able to accept the "early bird" offer in time.

I am guessing that you havent really looked into the matter at hand and are simply posting a generalised comment on risk and reward.

Whilst im all for that, when simple matters such as trust deeds, capital adequacy and plain, out and out, decency (the exclusion of retail investors/differential treatment of what should be equal right holders) are being thrown away then action is needed.

report this

David Webb

Jun 10, 2011 at 14:49

The 13.375% coupon rate reflects the interest rates at the time these were first issued. Anyone purchasing these in the low interest rate conditions before the credit crunch would have had to have paid a much higher price than the normal par value of these bonds and hence would have received a yield on their investment which was much much lower.

The risks for bonds are set out in their prospectus when they are sold and details the conditions under which they can be redeemed and the conditions under which coupon payments can be suspended. One of the fundamental conditions written into such contracts is how they are treated if the company fails and goes into administration or is nationalised.

This depends upon their position in what is known as the capital hierarchy.

Basically those with senior bonds have a greater call on any remaining assets than more junior sub-ordinated bond holders who in turn have a greater call than the company owners the shareholders.

In any bankrupcy or nationalisation shareholders will be totally wiped out before any creditors but bondholders will then have to take haircuts because usually there are not sufficient assets left to pay them all. Subordinated bond holders would then be the first to face such haircuts and if their are insufficient assets left might find themselves wiped out as well. This means that Bondholders facing the prospect of a Company failure will usually be asked by the company to voluntarily renegotiate the terms of their bonds maybe allowing temporary suspension of coupon payments, extension of the period until the bonds are redeemed etc

The Irish Government do not own a majority stake in this Bank but in order to protect their shareholding have torn up the capital hierarchy and whilst shares are still in public hands are targetting creditors of the Bank /bondholders with coercive tenders. There has been no attempt at constructive negotiations with the bondholders.

report this

David Webb

Jun 10, 2011 at 14:51

The 13.375% coupon rate reflects the interest rates at the time these were first issued. Anyone purchasing these in the low interest rate conditions before the credit crunch would have had to have paid a much higher price than the normal par value of these bonds and hence would have received a yield on their investment which was much much lower.

The risks for bonds are set out in their prospectus when they are sold and details the conditions under which they can be redeemed and the conditions under which coupon payments can be suspended. One of the fundamental conditions written into such contracts is how they are treated if the company fails and goes into administration or is nationalised.

This depends upon their position in what is known as the capital hierarchy.

Basically those with senior bonds have a greater call on any remaining assets than more junior sub-ordinated bond holders who in turn have a greater call than the company owners the shareholders.

In any bankrupcy or nationalisation shareholders will be totally wiped out before any creditors but bondholders will then have to take haircuts because usually there are not sufficient assets left to pay them all. Subordinated bond holders would then be the first to face such haircuts and if their are insufficient assets left might find themselves wiped out as well. This means that Bondholders facing the prospect of a Company failure will usually be asked by the company to voluntarily renegotiate the terms of their bonds maybe allowing temporary suspension of coupon payments, extension of the period until the bonds are redeemed etc

The Irish Government do not own a majority stake in this Bank but in order to protect their shareholding have torn up the capital hierarchy and whilst shares are still in public hands are targetting creditors of the Bank /bondholders with coercive tenders. There has been no attempt at constructive negotiations with the bondholders.

report this

Dibbeth

Jun 10, 2011 at 14:55

Thanks Tim. I hope there's enough publicity so that other small shareholders are aware of this. I am not giving in to these people. I am just concernd that many will take the cash with the fear of getting nothing if they don't.

@pl - these bonds were bought under a contract which provided for the interest stated. The description of this investment is "A bond with no maturity date. Perpetual bonds are not redeemable but pay a steady stream of interest forever".

report this

Mark Taber

Jun 10, 2011 at 15:09

A couple of points:

1. The 13.375% coupon rate in misleading. It represents the rate at the time the bonds were first issued as permanent interest bearing shares of Bristol & West Building Society back in the 1990s. Rates were much higher then (I remember when the rate on my first mortage hit 15%) and that is why it looks high in today's terms. However, the price of the bonds will have risen as interest rates fell andso many holdeers will have paid around £2 for the notes so their interest rate is about 6.6%.

2. The offer to private investors (who account for 90% of the bonds) is disgraceful. At 20p in the pound with no interest they are being offfered less than half the offer to larger holders of 40p in shares plus interest. There is little incentive for them to accept. 20p cash or hold on to see what happens. If they hold on and vote against the resolution and the resolution to permit the bank to buyback their bonds is not passed downside is low from 20p. Maybe an SLO at 18p, maybe better. Upside is huge - could be left alone

Affected holders can add themselves to the campaign list at:

http://www.fixedincomeinvestments.org.uk/home/bank-of-ireland-13-375-subordinated-bonds

report this

Robert Sanders

Jun 10, 2011 at 17:37

In December 2010 George Osbourne agreed a £3.2bn bilateral loan to Ireland in what he described as a loan to a “friend in need”. This loan was in addition to Britain’s participation in the International Monetary Fund’s package of loans to Ireland and in the EU’s £55 billion stability mechanism.

British pensioners are being repaid with a potential theft of their property by the Irish Government in the guise of a liability management exercise announced by the Bank of Ireland.

We lend money to Ireland they repay us by short changing our pensioners and hoodwinking our regulator.

Thousands of pensioners stand to be substantially out of pocket if Bank of Ireland isn’t stopped in their attempt to ride rough shod over the rights of UK private investors and pensioners by ignoring established capital hierarchies. Our regulator the FSA is standing by while BOI ignores the legal rights of BOI bondholders set out in the Trust deed governing these bonds.

report this

Graham Whiffen

Jun 10, 2011 at 18:13

Am I missing something here?

Clearly the word 'Bond' is totaly misrepresented here when an institution can enter into a financial contract with an investor and then decide to move the goal posts having got the money.

Just deciding to devalue an investment or reduce the contracted return, is frankly sharp practice, and disgusting.

Can I now decide to reduce my contractual mortgage payments and my lender have to lump it?

No. I would be in breach of contract and suffer the consequences and quite rightly so.

This is just another example of the wholesale attitude of 'screwing the investor' that is becoming indemic these days and the system seems to stand by and let this carry on.

I also object to the use of the appeasing term of 'haircut'. It is damned fraud and welching, and should be seen and termed as such. Before anyone whinges about my opinion in this matter, I have no financial interest in this issue. I am just one of many other pensioners who has seen their end of working life savings evapourate, apparently quite legally, through another blue chip company manipulating without my consent whilst hiding the facts.

It is a damned disgrace but corporate shame and personal responsibility seems to have gone out of the window together with the investors hard earned money.

report this

Anthony Robson

Jun 10, 2011 at 18:29

Bank of Ireland, what rating did it have at the time? I think it also shows that the regulators are an expensive waste of money. What are they actually on top of?

report this

David Warner

Jun 10, 2011 at 18:29

I agree with Robert Saunders point - the Irish government has had special assistance - the least they could do is respect our mainly elderly Bristol and West investors and give them a better deal. I would have thought that if there was a 80% payout that would more fairly reflect the investors taking on some of the financial pain.

I feel sorry for those potentially caught out, but I have to say since the banking crisis PIBS are clearly a risky sector. And could become riskier if property valuers suddenly took a turn for the worse in the UK. The fact that many investors bought the bonds when they thought Bristol and West was independent and safe as houses just shows how merger mania can destroy value - it's like RBS/Amro on a much smaller scale.

Note also that there are a number of Lloyds Bank non cumulative preference shares not paying dividends - apparently this was ordered by the European banking authorities who objected to dividends being paid on this class of capital when ordinary shares cannot pay dividends due to inadequate capitalisation of the Lloyds Banking Group.

report this

Kenpen2

Jun 10, 2011 at 18:51

There seems to be a parallel here with Equitable Life - another institution which gave what at one time may have seemed a reasonable guarantee that later become a nightmare liability.

The article says that Hemming bought his PIBS in 1991, if so he's already had 20 years of 13.375% interest ? Nearly 270% without compounding. My heart doesn't exactly bleed for him. Granted that it's not so good for those who bought later and at a higher price, but still unsustainable for the issuing institution.

Time to stop whingeing boys. Many (most?) of you have already done very nicely out of these bonds. "If a deal looks too good to be true it probably is ..."

report this

DJP

Jun 10, 2011 at 19:17

@Kenpen2

Nowt to do with, "if a deal...etc".

What this is to do with is a government riding roughshod over the established law of capital hierarchies. You should know (I hope you do) that ordinary shareholders and lower ranking debt issues take the first "hit". In this case the Irish State is ignoring the lower ranking equity and the preference shares held by the National Pension Fund.

Further, they have structured a deal whereby the "normal" retail holder gets screwed over as they are excluded from the full options as "professional" investors or very large holders. The same security yet different treatment of holders, specifically hurting the "little old lady/man" who may have £1000 or so worth of the PIB. That's even if they get the documentation (all 400 odd pages of it) and can read, understand and act on it before the so-called "early bird" options close leaving anyone else with an even lower offer.

It can't be right to treat different holders of the same investment differently when the investment has a trust deed and rules stating that all holders are equal.

John Hemming is merely, like many of us (I don't have any of the security in question personally or for clients) trying to get eual rights for all holders. Highlighting the injustice of the proposals.

report this

briman

Jun 10, 2011 at 21:01

How many of those who have borrowed from the bank are able to reduce their loans by 80% and repay the bank only 20%?

This is institutional mugging and reveals the contempt management have for the mugs who invested in them.

There are similarities here with the Split Capital Investment trust scandal .

Deceitful management, manipulating the system are able to walk away from the financial mess almost with impunity.

I doubt the story will end with the Bank of Ireland. There seems to be something rotten in financial system and a loss of ethical standards seems contributary. Let's see how the Bank of Ireland circumnavigate the need to revisit the market with further bond issues in the future.

report this

William Phillips

Jun 10, 2011 at 21:17

Speaking as a Northern Wreck shareholder, I wish you luck, but I know what can happen when a government decides to screw up a company 'in the public interest'.

(OK, mine were free carpetbagged NR shares, but the point stands.)

report this

Ines

Jun 10, 2011 at 21:25

One thing that this crisis has shown - governments are above the law. What about the due diligence for Lloyds taking on HBOS? What about the Bradford and Bingley debacle? Singer and Friedlander etc...Now the higher rights of bondholders over shareholders are ignored. It is a disgrace. I doubt if anyone will be able to do anything about any of it.

report this

Muggle

Jun 10, 2011 at 22:07

It is not true to say that the return on the B & W PIBs reflected the risk of an investment with the BOI. The interest reflected the going rate at the time when inflation was rampant and the B & W was a perfectly good risk. The Directors of BOI should never have been allowed top buy B & W.

report this

gwilym rhys-jones

Jun 10, 2011 at 23:26

Remember Barings Bank bonds? Not a penny paid out if I recall correctly as in they lost the lot.

report this

Cautious Investor

Jun 11, 2011 at 10:26

Granted, it's tantamount to illegal and should be resisted.

Just checking my understanding: anyone who invested, say, £10,000 in 1991 has been paid out c£26,750 in coupon and is now being offered £2,000 return of capital, making £28,750 in all (disregarding the time value of money) - is that correct?

report this

Anonymous 1 needed this 'off the record'

Jun 11, 2011 at 10:56

The bank is bust. Everybody is wiped out. The only right any investor has is a right to a share of zilch. If the bank were in receivership, that's what bondholders would get.

The Irish Government is only (and properly) trying to find out the least it can spend to minimise the consequences of bank busts for the Irish economy.

The nominal price of the pibs is irrelevant because they aren't redeemable. The market price is the only price. This is a function of interest rates, and also of market confidence in the company continuing to be able to pay coupons.

But the bank is bust, so there is effectively no liability on anybody to make any further coupon payments. If it were in receivership, there would be no more.

Coupon payments have been able to continue so far only because the shareholders have had the government over a political barrel. The market value of the bonds resides only in that, but it's obviously not something that can continue indefinitely.

Unless John Hemming thinks there's some way these bonds can continue paying out 13.375% until kingdom come, he'll have to face the fact that they have no residual capital value. That's the nature of an undated bond, and what makes it quite different from a bond with a fixed maturity date.

This would be a whole different discussion if it was about fixed-term bonds. But comments posted so far don't seem to have taken the non-redeemable nature of the bonds into account. What's the use of a place in the capital hierarchy if the bonds have no redemption value anyway? Do they really think the receiver would redeem the bonds at par if the funds were available? Sorry folks, but that's not what you've bought.

See War Loan etc.

report this

DJP

Jun 11, 2011 at 11:20

Anonymous

If BKIR was "bust" then I'd have no problem with the creditors getting nothing.

But you haven't understood what the State is trying to do. It is overturning the established order with its, well, let's call a spade a spade, theft. If the state were wiping out creditors in the order it should do, shareholders then tier 1 debt, then upper tier 2 debt, then lower tier 2 debt and so on, I wouldn't have a problem. What they are doing with their plan is leaving shareholders and the preference capital (tier 1) held by the National Pension Fund, intact and then attacking higher ranking bonds. That is completely out of order.

In a receivership then any capital left at the end of the winding up would have, by law, have to be distributed in accordance with the ranking of creditors with shareholders ranking last with the NPF prefs standing above them but below the debt issues they are attacking now. Do you understand that?

What John Hemming (and others) are doing is drawing attention to a separate issue with the discriminatory offer to retail investors as opposed to "professional" holders of debt. Something that Moneybox on Radio 4 should be covering in an hour.

report this

Dreckly

Jun 11, 2011 at 11:22

Sadly, all of the above underlines just how little the vast majority of people actually know about the real, long term risks and rewards of savings and investing for their future.

Relying on the Financial Services people to 'educate' their customers is like learning everything there is to know about cars from your local dealership.

What does an otherwise bright, 18 year old with a few A levels know about the basics of this topic which will be of practical use?

This is the real issue and one that is not, over time, beyond the wit of man to fix.

report this

DJP

Jun 11, 2011 at 11:23

Anonymous,

PS the retail bonds (ex PIBS) do have a "redemption" value in the event of a winding up then they are entitled to receive up to face value (total £75m IIRC) before any funds go to those lower ranking creditors, the NPF prefs then shareholders.

report this

White Stick follower

Jun 11, 2011 at 11:29

Once again the financial industry defaults and leaves 'Joe Public' to pick up the tab. I wonder what level of performance bonus was paid to the high & mighty in BOI? On another aspect FSA has not been on the ball, but no doubt will write a review of what went wrong so that makes it all right doesn't it?

report this

DJP

Jun 11, 2011 at 11:50

Amen Dreckly

Conpulsory financial education in schools would help enormously to reduce scandals and mis-selling. Perhaps the FSA could learn something too? ;-)

report this

Ines

Jun 11, 2011 at 12:05

Is it surprising that no-one these days saves for their future? Even if they can get their head round the small print there is effectively no reliable legal protection for what is written in the small print anyway. Yes, stocks and shares, but that takes a lot of thinking about too and is full of pitfalls - so no wonder everyone goes for buy to let.

report this

dd

Jun 11, 2011 at 12:56

"Moving the goalposts" ... (My word is my) "Bond"

These two expressions don't tie up in my mind.

report this

Brian Stafford Garthwaite

Jun 11, 2011 at 13:33

I do not hold these Bonds,however as a pensioner who saved for retirement and lost heavily in Equitable Life and Lloyds Bank I have much sympathy for those caught in this mess. What is outrageous is the small investor receiving a very raw deal compared with the larger institutional investor. That is WRONG!!! Govt is very good at being legal and ethical, however when it suits their book all that goes out of the window - fast! It has already been said the UK Govt have supported the Irish and this is how we are rewarded, some friends!

report this

Alimhor

Jun 11, 2011 at 14:37

The point that seems to be missed from all of the above is that the FSA allowed investors in B&W to be taken out from under its protection umbrella when the bank was amalgamated with a branch of BoI in England.

Was this legal, as it seems strange that BoI later thought it necessary to set up a separate legal identity in the UK from which to operate theough the Post Office?

report this

xxxxx

Jun 11, 2011 at 18:09

If Bank of Ireland can do this, is there anything stopping the UK Government from doing the same to Lloyds, RBS, NatWest preference shares and Halifax pibs?

report this

Peter Wilkinson

Jun 11, 2011 at 18:28

If the BoI get away with this state sanctioned highway robbery, what a good example to the younger generation to ignore all the Gov hype about investing/saving for their future retirement!!

report this

Muggle

Jun 11, 2011 at 21:01

As a matter of interest - was the BOI solvent when it bought B & W ?

report this

Ines

Jun 11, 2011 at 21:39

How does one know when a bank is solvent? Everything is hushed up until they are so far gone it is too late.

It is amazing that people who bought perfectly respectable PIBS should find themselves in this situation. Many retired people were sold PIBS as a safe income stream by stockbrokers and financial advisers, they were not considered speculative investments.

report this

dd

Jun 11, 2011 at 22:43

Like the zeros.

report this

Anthony Robson

Jun 11, 2011 at 23:21

Their advisers were wrong then, weren't they!!

report this

Ines

Jun 11, 2011 at 23:51

Yes - but there won't be any recompense as technically the advisers etc would have been correct - they would have believed what was in the legal description of the products and sold them accordingly - and no-one will be recompensed by the government which has obviously failed, yet again, the protect the interests of law abiding citizens in order to pander to bankers and other governments.

report this

colin knights

Jun 12, 2011 at 08:43

No one can complain when the terms of a contracy are openly apllied what is wrong in this case is the Government allowed the takeover of the Bristol and West without warning the bondholders they were losing the protection of UK guarantees,

Even more disgraceful is the fact that the UK is now giving the Irish Government money and effectively ignoring the interests of their own pensioners.

report this

Derek Gray

Jun 12, 2011 at 19:02

I hold 4000 of these bonds but I paid a lot more than £1 for each of them so I get a lot less than 13.375% interest. If I accept 20p in the nominal £1 value I end up with up with £800. If I vote against the proposal I might end up with much more if the lawyers do a good job. Also I will be voting against what seems to be a very immoral stance by Bank of Ireland. I think I will be voting against!

report this

Dibbeth

Jun 13, 2011 at 07:49

I am also a 3000 bondholder. I understand that paying 13.375% interest for ever is, perhaps, unrealistic at this time, even though this is the contract they were bought under. If the BoI were to buy back my bonds at 3000 then I would accept that and invest that money elsewhere. Trying to get them back at either 20p or 1p however is blatant theft. I also hope the lawyers do a great job and stuff these thieving, overpaid, immoral executives and the obviously incompetent Irish government, who have ruined their own finances and are now expecting the vulnerable to pay for their mistakes.

report this

Roy Berry

Jun 13, 2011 at 14:58

I am a 5000 holder and one of the pensioners who bought the bond in 1994 when, as many have stated, interest rates were generally a lot higher than now. It might seem to younger readers that 13+% is an amazing rate but we bought it to supplement a modest pension and never for one moment thought that we could lose the original capital stake.

We, of course, bought it from Bristol & West and were told by the BOI when their purchase of the building society was announced as a fait accompli, that nothing would change. If only we'd known that our UK financial regs would no longer apply, we could have sold the bond then.

The UK is lending financial support to "our friends" in Ireland which has been brought to its knees by the incompetence of its bankers and government who leapt into the Euro trough and benefited hugely over the last decade. Presumably they thought that this money train would chug on for ever.

We might not have expected our high interest rate to last for ever in the current climate but we surely have a legal right not to be blackmailed into forfeiting our capital altogether if we vote against this motion? Talk about highway robbery!

report this

Roy Berry

Jun 13, 2011 at 15:53

I sent a comment - where is it?

report this

Mary Hamilton (Citywire)

Jun 13, 2011 at 15:55

Sorry Roy - sometimes it takes us a little while to approve new commenters. It's up now.

report this

Roy Berry

Jun 13, 2011 at 16:10

As a 5000 bond holder, I am one of those pensioners who bought a PIB from Bristol and West in 1994. To younger readers it might seem that 13.75% interest is very high but, at the time, it was only just above what was normally available.

When the BOI bought Bristol & West, we were told that our PIB would carry on as before. Had we any inkling that the same rules would not apply in Ireland and that we could lose virtually all our original investment, we would, of course, have had the option to sell the bond and invest the money elsewhere.

The UK is providing billions to help bale out "our friend" Ireland which has become bankrupt due to the incompetence, shortsightedness and greed of its bankers and government who leapt into the Euro trough and spent the money it received as if there were no tomorrow. And now we, who originally bought into a British Building Society, have to be punished for their incompetence. I'm almost speechless!

To be given less than 2 weeks to decide to vote to receive just 20% of our original capital stake, is nothing short of highway robbery.

report this

Kenpen2

Jun 13, 2011 at 18:20

Roy, while I can understand your point of view I can't agree with it. You didn't "buy in" to a British BS, you loaned money to it at what for most of the last 17 years has been a usurious rate of interest.

It may have been a reasonable rate way back when but the problem was the P as in Permanent. The eejits who gave this hostage to fortune have doubtless long since retired on undeservedly generous copper-bottomed pensions. Your beef should be with them. The bond they sold you helped bring down B&W, and later the BoI. You are part of the problem. The Irish state is trying, in difficult circumstances, to fashion a solution.

You've done very nicely thankyou for 17 years. If you got absolutely nothing now you'd still be well ahead overall. Use of the words "robbery" and "theft" on this thread is misplaced. Everybody else has had the pudding basin treatment - shareholders, taxpayers, citizens. Why should bondholders be exempt ? It may be rough but it's still justice.

report this

DJP

Jun 13, 2011 at 18:53

Kenpen.

Methinks you're trolling. You're deliberately altering the points at least.

Fact 1. B&W issued the PIBS at a time when rates were high, as did UK govt, other BSocs etc. That's the price of doing business. They needed the capital and that was the price then.

Moving on from that point, it is theft if a government overturns the legal capital ranking, targetting the higher creditors whilst leaving the govt inferior preference capital untouched (saying nothing about the ordinary shareholders).

Also, structuring a deal that means that the retail investor gets excluded from a better value offer is reprehensible. How about we introduce a law to say that in a takeover on shareholders whose surname begins with A, C, E, etc gets to accept the deal whilst others get half? That's effectively what is happening and I can't see how you don't get it.

report this

Kenpen2

Jun 13, 2011 at 19:52

DJP, I had to look up "trolling" and no, I'm not doing that. I'm not seeking to elicit emotional responses, rather giving mine to the bleeding hearts on display here. Nor am I altering points, just discussing different ones from you.

I freely admit you know much, much more about this issue than do I. But possibly your detailed knowledge is preventing your seeing the wood for the trees ?

Your narrowly legalistic approach is, to my mind, invalidated by the force majeure that was the banking crisis - a crisis precipitated in part by the kind of foolhardy product we're discussing, as you seem unwilling to acknowledge. It's not as if the Irish or any other government wanted to be left holding these particular babies. But they were and now they've just got to sort out the mess and do their best to balance the claims and interests of all the parties without being unduly hamstrung by rules which were drawn up to apply in entirely different circumstances.

I agree that it would, on the face of it, seem fairer to treat all holders of the same bonds in the same way. But I'm not in possession of all (or indeed any of) the facts so there may be other considerations.

Incidentally, do you know of any other PIBS still in existence which pay anything like these rates ? Readers might like to know which other institutions saddled themselves with unaffordable promises in perpetuity if only to avoid them like the plague.

report this

DJP

Jun 13, 2011 at 20:44

Kenpen

At the end of the day there has to be the law with the law applied consistently. If BKIR had gone under and then the law of capital ranking applied then there's no problem with that. Start with the lowest ranking and work up, wiping them out accordingly.

What you don't appear to realise is the wider ramifications that this could set by way of precedent. I'm not talking just about the 13% PIBS but all the issues caught up here.

If this becomes accepted then debt funding for all companies, not just banks, will cost a lot more since there would now be a risk to senior debt. Raising the cost of funding for all companies is not a good thing.

As for other issues, aside from the UK govt (the 15%+ coupon gilts have been repaid but there is still a 14% Exchequer stock out there IIRC), there are other high coupon issues from the likes of the C&G out there. It was simply the price that they had to pay to raise capital at the time (a time of high inflation and interest rates).

report this

Ines

Jun 13, 2011 at 22:33

It is a very bad precedent and needs to be fought against. I wonder how many other formerly British banks have PIBS and other bonds which are now under foreign jurisdiction. Santander (Abbey National) comes to mind. If the Euro breaks up and they are all in trouble it could affect a lot more people.

report this

Kenpen2

Jun 13, 2011 at 23:45

I don't buy your "precedence" argument; this is not a normal commercial takeover nor winding-up, the state isn't trying to shaft any particular group for its own benefit, but has committed public money for the long-term public good.

"Force majeure - a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties prevents one or both parties from fulfilling their obligations under the contract".

I'm no more a lawyer than a finance guy but that seems to me to apply here. There's no reason for any carry-over into the funding, take-over or winding up of any other kind of company.

And even if funding costs did rise, would that necessarily be a bad thing ? Might it not lead to less borrowing ? Wasn't the over-supply of easy credit what got us into this unholy mess anyway ? :-) Over and out.

report this

DJP

Jun 14, 2011 at 06:54

Kenpen

Thank you for confirming you're no more a lawyer than a finance guy. Your reply highlighted that fact very clearly and also the danger of people commenting without knowing details.

report this

Peter Wilkinson

Jun 14, 2011 at 23:17

Indeed, the bigger picture is the Rule of Law, and State sanctioned highway robbery is a precedent too far - maybe in Libya but not in the EU, thanks!

report this

Anthony Robson

Jun 15, 2011 at 00:59

The EU being the pillar of all things good I suppose?

report this

Ines

Jun 15, 2011 at 08:26

The EU not having had its books signed off for years....and constantly breaking its own 'rules' eg current bailouts.

report this

perry

Jun 15, 2011 at 09:55

I am an OAP - the letter arrived on Sat 11th and I will need to post off reply by this coming Sat in order to make sure that it arrives in time. (some people could well be away on hoiliday at this time of year) That only gives me 5 working days to find somebody to explain all the legal jargon to me. It seems to me that the whole thing has been conived in such a way as to blackmail or hoodlink people so that they are left with the 1p offer. Alright the Bank is in trouble but the way this is being handled is manipulative, underhand and absolutely disgraceful.

report this

DJP

Jun 15, 2011 at 10:12

Perry

An action group has already engaged with the Bank of Ireland via lawyers and had a success yesterday with the BoI being forced to extend the deadline for action for the ex PIBS holders.

I'd strongly recommend going and having a look at this site, which was set up to act as a source of information/co-ordination point and should prove helpful:

They are also proposing legal action against the BoI if the issue is not excluded.

http://www.protect-my-savings.co.uk/

Hope that helps.

report this

DJP

Jun 15, 2011 at 10:20

Perry

I see that the letter from the lawyers has been leaked:

http://av.r.ftdata.co.uk/files/2011/06/BOI_BristolWest.pdf

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

Greater Europe and Emerging Europe A comprehensive approach to investing in Europe


Making the most out of Europe's potential means seeing things differently. Learn more about how BlackRock's focused approach to investing in Europe helps investors unlock the continent's vast potential.

Watch Now

The Citywire Guide to Investment Trusts


In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.

Watch Now

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Read more...

Are there still Brexit bargains to be had?

by Michelle McGagh on May 25, 2017 at 13:49

Sorry, this link is not
quite ready yet