Bank of Ireland takes bizarre action to prevent the State acquiring more than 50% control
The State presently owns 36.5% of the ordinary stock of Bank of Ireland thanks to the payment in lieu of cash of the 8% dividend on the €3.5bn “directed” investment from the National Pension Reserve Fund in March 2009 and the conversion of some preference shares to ordinary shares in May 2010. You might recall that in February 2010, BoI paid out 184m ordinary shares to the NPRF on its €3.5bn preference share investment made in March 2009, in lieu of a cash dividend because the pesky EU had forbidden it to make a cash distribution when in receipt of State-aid. Three months later, the NPRF acquired additional ordinary shares in BoI through the rights issue by the bank and the conversion of some €1.7bn of the preference shares to ordinary shares. As part of the rights issue conversion of preference shares the interest rate payable on the remaining €1.8bn of preference shares was to rise from 8% to 10.25%. So that’s how the State this morning owns 36.5% of BoI and has €1.8bn of preference shares yielding 10.25% per annum with the dividend due next February 2010.
Next February 2011, BoI will be required to pay the NPRF €214m – roughly 10.25% of €1.8 (I say roughly because remember we had €3.5bn preference shares earning 8% for about two months of this dividend year and then the 10.25% applies for 10 months approx). We are now waiting almost four months (a record as far as I can tell) for the EU to publish the Decision announced on 17th July, 2010 which set out the conditions for BoI’s restructuring. I’m willing to bet that the EU will allow BoI to start making cash payment for dividends again. Because if they don’t, BoI would need pay the €214m in ordinary shares or at current prices (€0.42 per share with the company having an ordinary share capitalisation of €2.24m), nearly 10% of the company which would bring the State shareholding up from 36.5% to 46.5%. Given the volatility of BoI’s share price, we could easily end up with an ordinary share dividend which would give us 50% of BoI – majority control which seems anathema to the State’s strategy for the banking sector.
And so yesterday in the High Court we witnessed the bizarre spectacle of BoI applying (in simple terms) to be allowed reclassify part of its capital base in such a way that a dividend payment can be made in cash so the horror of the State taking majority control of BoI can be avoided. Of course if economist Morgan Kelly, whose latest jeremiad in yesterday’s Irish Times is correct (and there is sufficient support for his position to suggest he’s not being a crackpot), then the scale of non-NAMA losses in BoI will give us majority State control in the near future anyway. Nonetheless it is interesting to see the legal lengths to which BoI will go to avoid majority ownership in the next three months
The Government accepts now that Anglo will cost the taxpayers 34.5 billion and we must accept that AIB and Bank of Ireland will cost at least €30 billion because they were just as bad as Anglo in lending, not only to the Developers but to ordinary folk that couldn’t not even afford the matchboxes the banks were lending out money for. So you end up with a taxpayer bill of €13 billion for Bank of Ireland plus the 3.5 billion we already paid out Bank of Ireland lending practices were on par or even worse than Anglo Irish Bank as they tried to catch up with Anglo . With the worsening mortgage default situation heading our way and a possible bailing out of negative equity home owners a much bigger loss provision will have to be faced up to at Bank of Ireland and that is before we start on the derivates Losses .For my money we are now looking at the end game.
Bank of Ireland is only months away from been nationalized and to assume anything else is simple ignoring reality, there cooked and we the taxpayers are snookered!
Just two points in support of this assumption
(1) Yesterday the Irish times seem to have now gone against the Government with that article from MORGAN KELLY up to now there were mostly cheerleaders for the Government in its actions with the banks and the whole NAMA set up, the Kelly article is a watershed and a parting of the waves and I believe the Irish times is “smelling change” of Government is in the air and want to be on the winning side.
(2) Cowen and lenihan have lost the plot all together and we now have foreign” minders “taking up residence in the Department of Finance and also in Treasury Buildings (NAMA ) Our sovereignty in lost because of the actions of these traitors and the blame game is about to get started.
God help us all
look at these videos
- The likely cost of Ireland’s bank bailout (ftalphaville.ft.com)
- Ireland’s new toxic loans will spark social conflict, says economist (guardian.co.uk)
- Having handed the keys to Ireland’s silver to the ECB… (sluggerotoole.com)
- Olli Rehn says consensus would be of great benefit to Ireland (sluggerotoole.com)
- Ireland’s Next Blow: Mortgages (online.wsj.com)