Irish Government "haircuts" Bristol & West Shareholders

John_Pierpoint

The "haircut" to be delivered to small shareholders of Bristol & West - the former building society - is more Yul Brynner than "a trim".

http://www.fool.co.uk/news/investing/2011/06/10/bank-of-ireland-offers-pibs-holders-peanuts.aspx

grizzly1911

John_Pierpoint wrote: »

The "haircut" to be delivered to small shareholders of Bristol & West - the former building society - is more Yul Brynner than "a trim".

http://www.fool.co.uk/news/investing/2011/06/10/bank-of-ireland-offers-pibs-holders-peanuts.aspx

Any idea what these traded at in the good days, 13%+ seems a high rate, what was the yield?

Generali

grizzly1911 wrote: »

Any idea what these traded at in the good days, 13%+ seems a high rate, what was the yield?

They hit about 150 at one point I think so yield ~9%.

The real scandals here are two. Firstly institutional investors get better terms than small investors in direct contravention of the T&Cs. Secondly it's what's known as a coercive offer: the terms are such that if you accept a bad deal then you dodge a worse one.

grizzly1911

Generali wrote: »

They hit about 150 at one point I think so yield ~9%.

The real scandals here are two. Firstly institutional investors get better terms than small investors in direct contravention of the T&Cs. Secondly it's what's known as a coercive offer: the terms are such that if you accept a bad deal then you dodge a worse one.

They took the gamble then at 9% - there is no free lunch.

The scandals described are fair points though.

tartanterra

grizzly1911 wrote: »

They took the gamble then at 9% - there is no free lunch.

The scandals described are fair points though.

Spot on.

These PIBS paid a high level of interest to reflect the risk involved.

When you lend money (PIBS are in effect, buying debt), then there is always a chance of default.

Anyone investing in this should have understood the risks involved. It's unfortunate for these investors, but I can't really feel that sorry for them as they were taking a gamble in return for a high yield.
If the bank cannot now afford this debt, the money would have to be provided by taxpayers, which really isn't on.

That said, it seems highly dubious to treat small investors differently from institutional investors.

Generali

It's completely reasonable for investors to lose money IMO. What isn't reasonable is for people to invest under a particular set of conditions and then have the rug pulled from under them.

This is happening in a lot of Irish bank issues at the moment AFIAK.

ChiefGrasscutter

Generali wrote: »

Secondly it's what's known as a coercive offer: the terms are such that if you accept a bad deal then you dodge a worse one.

Same sort of thing happened with Equitable Life scandal as I recall.
(some people at work had part of their pension with them so I got bits and bobs of feedback of the bad news which seemed to get worse each month)

So far as I can remember they were given an option to get out/transfer their funds elsewhere by date X with some mega reduction to their pension pot.....or leave it till rather later with a simply horrendous super mega reduction to their pension pot

grizzly1911

ChiefGrasscutter wrote: »

Same sort of thing happened with Equitable Life scandal as I recall.
(some people at work had part of their pension with them so I got bits and bobs of feedback of the bad news which seemed to get worse each month)

So far as I can remember they were given an option to get out/transfer their funds elsewhere by date X with some mega reduction to their pension pot.....or leave it till rather later with a simply horrendous super mega reduction to their pension pot

Had some AVCs with them but got out early. Wasn't a massive amount and recovered monies put in, luckily.

John_Pierpoint

"There was always a better time to have left Equitable Life". "There was never a bad time to have left Equitable Life"
Several of my colleagues had "with profits" pension and life insurance with Equitable Life.
I'd been round the block already with London Life (!!!!!! Whittington & cat as mascot) - fortunately our ship of fools was rescued by Australian Mutual Provident (who then did their own equivalent of being a UK building society and over reached themselves.
So I posted my adventures with LL (nothing quite like the middle classes braying for their money) on the FT web site. The FT was experimental and free-wheeling in those days,[A bit like MSE] and blow me some IFA had done just that and produced a comparison of LL & EL - the message was clear:
Get out now while you still can.
[It was a bit like Northern Rock where LL had been the pathfinder for the larger institutions coming later - even though LL's problems had been triggered by switching into equities just in time for the 1987 hurricane - physical & financial.]

I don't think anyone took my advice, as the rumours that Equitable Life might have to close its fund could have meant reduced administration costs and a bigger pay out for those who stayed the course.

Degenerate

tartanterra wrote: »

Spot on.

These PIBS paid a high level of interest to reflect the risk involved.

Completely untrue. These PIBs were issued in the Early 90s when interest rates were high. The rate did not represent a significant risk premium at the time.

The main risk associated with them was not that of default (who would have thought a building society might go bankrupt back then), but that the investor wouldn't get their principal back if they chose to sell. As "perpetual" bonds they were never likely to be redeemed at face value, so their value depended on resale value based on how they compared to current market interest rates. This also means that people who bought them on the secondary market years after issue may not have got anything like the headline 13.375% rate.

For these reasons they were often bought by pensioners seeking a constant income for the rest of their lives, who didn't care about redemption or resale. These people are now being shafted. They chose to invest in a perfectly sound British building society, not a dodgy Irish bank. Now they are having their investments effectively confiscated, taking away regular income that many may need to live comfortably.

John_Pierpoint

Can anyone remember what the deal was when Bristol & West's management set about "demutualising" B&W.
I wonder what the PIB's rights were at the time and how they voted?

If I remember my 100 GBP holdings, the ordinary shareholders (the savers) got one man one vote, regardless of holding.