Irish Government "haircuts" Bristol & West Shareholders

Mr_Mumble

Don't see how the Irish government have a leg to stand on legally. You can't offer large holders the equivalent of 40p in the £ and smaller holders 20p in the £. They have to be treated equally. Also, if its true that paper subordinated to the PIBSs is being kept whole just because its held by the national pension fund (first comment of the fool article) that's outrageous!

In practice the Irish government are likely to get away with this skullduggery. It'll probably cost the small PIBS holders more in legal fees than getting another 10p-20p in the £ would be worth.

Bond holders should be scalped/decapitated but it should be done under the rule of law.

Note: the UK government offered 33-38p in the £ for B&B and Northern Rock PIBS/PSBs on a voluntary basis late last year.

tartanterra

Degenerate wrote: »

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.

Wow, what a wonderful savings utopia. All reward and no risk?

Except it's not like that is it?

Your "perfectly sound British Building Society" was sold in 1997. Investors who were uncomfortable with this have had 13 years to get out of this investment if they wanted to.

As for "dodgy Irish Bank"; you obviously mean as opposed to non dodgy banks such as RBS or Lloyds?

Anyone buying a PIB (or a perpetual subordinated bond as it became when the society was bought in 1997) would know that they are not covered by a compensation scheme and should the financial institution run into trouble, they would be at the back of the queue to get their money back.

If they had really wanted a "safe" investment then they should have put their money into a deposit account covered by the Financial Services Compensation Scheme.
But they didn't do this did they? They increased their exposure to risk to gain a greater reward.
Nothing wrong with this of course, but expecting taxpayers to bail you out when things go wrong isn't really on.

Generali

tartanterra is right, this is a risky investment that isn't meant to be covered by any sort of guarantee and it is in line to default before savers lose a single penny.

The problem I have is the way that they are going about this. They are using (possible illegal) coercion to try to force people to accept terms that they wouldn't otherwise. On another issue the Irish Government already decided to ignore terms about 'seniority' (that is where one lot of holders of a bond or share lose money before others do).

If they keep ignoring the terms of issuance on bonds then people will be reluctant to lend.

John_Pierpoint

http://en.wikipedia.org/wiki/Britannia_%28former_building_society%29
http://www.bristol-west.co.uk/
http://www.flickr.com/photos/brizzlebornandbred/2128411673/

A gold bug identifies B & W as a particularly aggressive banker:

http://www.moneyweek.com/news-and-charts/economics/how-mortgage-banks-magically-create-money

Six to one is a bit risky when the borrowers are all after very long repayment terms on one type of loan.

Lest we forget:
http://www.independent.co.uk/news/business/will-customers-celebrate-the-irish-wedding-1306014.html

Ian_W

Generali wrote: »

The problem I have is the way that they are going about this. They are using (possible illegal) coercion to try to force people to accept terms that they wouldn't otherwise.

According to Citywire, you're not the only one!

‘We believe there are compelling arguments that this coercive element is unlawful on the basis that it constitutes an oppression by the majority noteholders on the minority,’ the law firm said.

Although the law firm - Brown Rudnick - is US based it does have offices in both London and Dublin.

This investment (like any investment) carries risks. However, the penalties when an investment turns sour should be borne equally by all investors in that product - so I hope the legal challenge does succeed as a warning to the Irish government (and ours) to stop stuffing the small investor and favouring larger, most likely institutional, ones.

sabretoothtigger

I imagine the reason Irish government would favour big money over small holders is they need to keep on good terms with the big money lenders for their own debt issuance

Mr_Mumble

BoI are giving bondholders a couple more weeks to accept the offer:
Ft Alphaville - UK pensioners 1 Irish bank 0

Seems to be an EU directive that's responsible for BoI's ability to treat small (<50,000 Euro) debt holders unequally.

John_Pierpoint

I was once on the receiving end of a similar "restructuring" of a private company.

To cut a long story short - the company had enjoyed a boom period and in today's money had made about 5 million.
However the long lease on its premises, in a sweatshop area of London, was coming to an end. Under English law at the end of a tenancy the tenant has to return the building to its state of (say) 40 years ago - or pay "dilapidations".
Faced with a loss of its "home" it resolved to relocate into a "developing" area - not quite "Corby" (former steel town) but you get the idea.
The business was financed by shares and about twice as much in redeemable preference shares, the latter were due for redemption.

Well the move was not a success, the business, cut off from its support network of similar local firms, tried to do too much of the process itself.

End result: Nice premisses in better surroundings (ie factory estate with trees), large stocks that were not turning over fast enough, large payments to former landlord (I wonder if NDG is living in something similar 40 years on?), and no money left in the bank account.

Oh dear what to do now?

By this time as a result of deaths in his family the MD had control over 55% of ordinary shares.

Consult well known English firm of chartered accountants:

Advice: 5crew your preference share holders, there is not enough enough money in the kitty anyway to redeem them.

[Translation: This government body who has given the business a grant/soft mortgage is a bit worried about the rights of the preference shareholders. We have found you (aged 55) a sweetheart deal with another company to fix you up with a half decent pension for life/consultancy agreement for 5 years. So all we have to do now is buy out the old codgers who own the preference shares - they have not had a dividend in years. Probably don't understand anything about shares and companies. Just offer them 20% saying the company is bust - they will take it one pound in 5 if better than nothing.
Shame we forgot to think about having a sinking fund to redeem the preference shares and were just assuming that we could roll them over.]

[I invested (in today's money) 750 quid, to try to protect an investment of 50K, getting a QC 's opinion. "Could I force the holding company to force the subsidiary company (where there was still some value) to transmit some of that value up the chain?"
- There has been a similar case in Canada, that went to the UK for confirmation BUT it is doubtful that the Canadian case would bind a UK court]

In the event I made a real nuisance of myself:
By by "controlling" more than 15% of the preference shares.
By digging out the above truth.
By contacting the other shareholders
and eventually getting 35 pence in the pound.

This Irish example is similar
But it is a public company.
But it is quoted on a world famous stock exchange with standards.
Some bunch of overseas pirates is trying to tear up the rule book by favouring itself over the subordinate debt.

Perhaps Gordon Brown had the right idea - time to freeze the Post Office balances by invoking the terrorism act.
"What is the difference between Iceland and Ireland....................?"

(The former have never to my knowledge financed terrorists).

tomterm8

There's nothing like the rule of law. And this is nothing like the rule of law.

( people who own shares of the same priority should all be treated equally. Otherwise, you have a thieves charter. I have no problem with haircuts, but I think they should be applied according to the rule of law, not according to the whim of governments)

John_Pierpoint

I see Northern Rock (good bank bit) is going up for sale - I wonder what would be the position of the PIB holders who refused the 35p offer ?