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BOI prefs

Posted: September 18th, 2020, 3:23 pm
by GrahamPlatt
Hi,

Given the recent word on the street that UK interest rates will remain very low (circa 0.1%) for the next 5 years and may even turn negative, I’ve been turning my thoughts to the 13.375% prefs, (presently available at £2 so ~6.7%). I have checked BRIGs figures (BRIG = Bank of Ireland voting shares) and like the figures, but given they tried to call the prefs a few years ago, I wonder if they might not have another attempt once the UK is properly out of the EU. Well, if HMG can renege on international treaties... Not wanting to get political, just looking for opinions.

Re: BOI prefs

Posted: September 18th, 2020, 4:53 pm
by GoSeigen
GrahamPlatt wrote:Hi,

Given the recent word on the street that UK interest rates will remain very low (circa 0.1%) for the next 5 years and may even turn negative, I’ve been turning my thoughts to the 13.375% prefs, (presently available at £2 so ~6.7%). I have checked BRIGs figures (BRIG = Bank of Ireland voting shares) and like the figures, but given they tried to call the prefs a few years ago, I wonder if they might not have another attempt once the UK is properly out of the EU. Well, if HMG can renege on international treaties... Not wanting to get political, just looking for opinions.



BOI are not preference shares they are debt, and there is no call option unfortunately, they are perpetual. So pretty much no chance at all that they will call them. If you are a holder wanting out you just have to take your chance in the market.

Bank of Ireland ordinary shares EPIC is BIRG. There is a fair bit of equity value here but everyone seems to hate the banks. IMO either the BOI debt or the ordinary shares are a good buy but they offer quite different risk/reward profiles of course.


GS

Re: BOI prefs

Posted: September 20th, 2020, 2:31 pm
by GN100
A bit of history here. The Republic Finance Minister, a certain Mr Noonan, around the time of the 2008 'crisis' attempted a sort of compulsory purchase of these instruments - probably at par but I can't now remember. Unfortunately for him, these were enacted under UK law (due to their history of starting life as Bristol & West BS prefs). The Court Case duly took place and, although a holder, I didn't attend but several posters on TMF did. The result was described as the said Finance Minister departing with a 'bloody nose' vowing he would be back. Naturally, he never was and we kept our BOI.

All this is from memory and it's water under the bridge now. However that protection still exists under UK law and I think is quite reassuring - despite the later Court Case shenanigans with Lloyds and their totally fatuous 'drafting infelicitation' = drafting mistake excuse. There is still a little reputation left in the City and, personally, I am happy to hold BOI but not Lloyds Prefs on trust grounds alone.

Re: BOI prefs

Posted: September 20th, 2020, 7:53 pm
by GoSeigen
GN100 wrote:A bit of history here. The Republic Finance Minister, a certain Mr Noonan, around the time of the 2008 'crisis' attempted a sort of compulsory purchase of these instruments - probably at par but I can't now remember. Unfortunately for him, these were enacted under UK law (due to their history of starting life as Bristol & West BS prefs). The Court Case duly took place and, although a holder, I didn't attend but several posters on TMF did. The result was described as the said Finance Minister departing with a 'bloody nose' vowing he would be back. Naturally, he never was and we kept our BOI.

All this is from memory and it's water under the bridge now. However that protection still exists under UK law and I think is quite reassuring - despite the later Court Case shenanigans with Lloyds and their totally fatuous 'drafting infelicitation' = drafting mistake excuse. There is still a little reputation left in the City and, personally, I am happy to hold BOI but not Lloyds Prefs on trust grounds alone.


Well that's an extraordinary version of history!

In 2008, far from taking any action against BOI holders the Irish government guaranteed the security of debt holders in all the Irish Banks for a period of, IIRC two years. In order to do this the Irish government and Central Banks provided both capital and liquidity to the Irish banks.

It was after the termination of this guarantee that BOI holders had to defend their bonds. Mr Noonan was not involved in the initial tender offer for BOI. The (coercive) offer was make to bondholders by the Bank of Ireland and withdrawn by the Bank of Ireland after media and legal pressure were put on them.

What Mr Noonan considered doing was to issue a subordinated liabilities order (SLO) and this was in Nov 2011. He was empowered to do so by Irish law supported by the European Union. To the best of my knowledge no legal action was taken against him because he didn't do anything: he announced a consultation and then reversed course about his intended SLO.

BOI is still vulnerable to an SLO if one were to be made, but why anyone thinks it would be is beyond me. The Irish banking crisis is now almost ten years past and Irish banks are a million miles from their position at end 2010.


If the poster doesn't believe in the rule of law (the Supreme Court having ruled in Lloyds's favour) that is up to him, but IMO Lloyds's reputation hasn't been damaged at all beyond a few private investors who refused to let go of their bonds until disaster struck. LBG have absolutely no problem raising capital in the markets and at lower yields than before the ECN case.


GS

Re: BOI prefs

Posted: October 7th, 2020, 9:55 pm
by GN100
I stand corrected - especially re the date which was in 2011, time dims the memory.

https://citywire.co.uk/investment-trust ... ds-insider

and more here

https://namawinelake.wordpress.com/2011 ... igh-court/

I still hold my BOI

GN

Re: BOI prefs

Posted: October 8th, 2020, 6:55 am
by johnhemming
This was a TMF banking board thing.

Re: BOI prefs

Posted: October 8th, 2020, 7:28 am
by GoSeigen
GN100 wrote:I stand corrected - especially re the date which was in 2011, time dims the memory.

https://citywire.co.uk/investment-trust ... ds-insider

and more here

https://namawinelake.wordpress.com/2011 ... igh-court/

I still hold my BOI

GN


It was a complicated recapitalisation process made difficult because the banks' so-called capital was no use as capital in a crisis! Thus the quid pro quo for the Irish Government rescuing the banks was that it had to force bondholders to absorb some of the loss through the Subordinated Liabilities Orders (SLOs) which affected several Bank of Ireland bonds, but not BOI.

Additionally the democratically elected government and majority shareholder (along with the CB in charge of financial stability) pushed the banks to tender for their bonds at large discounts with the threat of SLO to encourage take-up of the tenders. BOI was initially included in one of the tenders but the issuer withdrew in the face of a fierce publicity campaign by, amongst others, regulars on the TMF Banking Board as mentioned by John Hemming.


GS

Re: BOI prefs

Posted: October 8th, 2020, 8:12 am
by johnhemming
I dont think the legal action was irrelevant.

Re: BOI prefs

Posted: October 8th, 2020, 10:20 am
by Alaric
johnhemming wrote:I dont think the legal action was irrelevant.


Part of the background was that the BOI debt had previously been Bristol & West PIBS before the BOI takeover. PIBS (Permanent Income Bearing Shares) had been marketed by Building Societies as suitable for individual investors looking for a fixed income in perpetuity as well as being part of a Building Society's capital structure.

Irish government attempts to confiscate British pensioners' savings became a presentation of the issue.

Re: BOI prefs

Posted: February 1st, 2021, 10:48 am
by DampSeaweed
The following clause has just been brought to my attention. I was hoping that a more knowledgeable specialist might be able to express a view ?

https://prod-discourse-uploads.s3-eu-we ... 50f2b7.png

It’s an extract from the prospectus;

https://investorrelations.bankofireland ... bp-75m.pdf

Re: BOI prefs

Posted: February 1st, 2021, 10:59 am
by GoSeigen
DampSeaweed wrote:The following clause has just been brought to my attention. I was hoping that a more knowledgeable specialist might be able to express a view ?

https://prod-discourse-uploads.s3-eu-we ... 50f2b7.png

It’s an extract from the prospectus;

https://investorrelations.bankofireland ... bp-75m.pdf


What do you want to know?

GS

Re: BOI prefs

Posted: February 1st, 2021, 11:23 am
by DampSeaweed
Hi I was hoping you might pick up my post.
I was trying to determine if this clause was still valid, or if it has been superseded.?
My concern is that the UK government is going to have to raise taxes at some point, and quite possibly might look at changing what might be considered a deductible expense. I’ve got no idea of the likelihood or the risk. But it has suddenly become a concern.
Would I be correct in interpreting ‘ redeem at principal amount’ as par value ie 100p ?

Re: BOI prefs

Posted: February 1st, 2021, 12:06 pm
by DampSeaweed
Having thought a little more clearly; They can only exercise this clause if the UK or Irish government decide to change the tax law such that interest payments on bonds (and therefore probably bank borrowings) would no longer be tax deductible.
Having thought about it, that seems a huge move and would create all sorts of financial chaos across the UK domiciled corporate world.

Re: BOI prefs

Posted: February 1st, 2021, 1:13 pm
by GoSeigen
DampSeaweed wrote:Having thought a little more clearly; They can only exercise this clause if the UK or Irish government decide to change the tax law such that interest payments on bonds (and therefore probably bank borrowings) would no longer be tax deductible.
Having thought about it, that seems a huge move and would create all sorts of financial chaos across the UK domiciled corporate world.


Agree with all you've written so far. Clause is still current, principal amount is 100p, and removal of tax deductible status looks unlikely at this moment. I presume a partial removal of tax deductibility would not trigger the clause but a change to the law which somehow affected only subordinated bonds for example might be possible.... or bonds of non-UK issuers only? Let your imagination run wild...!

GS

Re: BOI prefs

Posted: February 1st, 2021, 2:29 pm
by Laughton
"or bonds of non-UK issuers only?"

I know this was a general hypothetical but would it apply in this case? Were these not originally issued by Bristol & West and if so would they still count as UK issued?

Re: BOI prefs

Posted: February 1st, 2021, 3:25 pm
by GoSeigen
Laughton wrote:"or bonds of non-UK issuers only?"

I know this was a general hypothetical but would it apply in this case? Were these not originally issued by Bristol & West and if so would they still count as UK issued?


Yes, it was just a random example. To be honest I can't remember the exact identity of the issuer of BOI. Do I have to go to the naughty step?


GS

Re: BOI prefs

Posted: June 16th, 2021, 4:43 pm
by NealMorris
Does anyone have a view on these, I was thinking of putting my Natwest payout into these, but I am a little put off by the high yield. Most of the legacy high yield bank capital seems to have received a boost lately, not here. I was always taught if it looks too good to be true it probably is so I assume they could retire these at par one day and the high yield reflects this fact ?

Re: BOI prefs

Posted: June 16th, 2021, 9:23 pm
by GoSeigen
NealMorris wrote:Does anyone have a view on these, I was thinking of putting my Natwest payout into these, but I am a little put off by the high yield. Most of the legacy high yield bank capital seems to have received a boost lately, not here. I was always taught if it looks too good to be true it probably is so I assume they could retire these at par one day and the high yield reflects this fact ?


Don't be fooled by the thread title. They are bonds, not shares. They are also perpetual. There is no call date; their value is mainly related to the bank's ability to pay, competing securities and the level of yields in general.

The high yield reflects the fact that it is an Irish Bank issuer with its income and liabilities denominated in Euros and that they are subordinated and somewhat illiquid. There are no strong contractual gotchas with this bond [but as usual, read the terms yourself].

GS