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Posts tagged ‘Capital requirement’

Phoenix magazine on the ball

Got my copy of the latest Phoenix magazine and I was delighted to see their article on the Bank of Ireland new capital requirement was closer to my estimates and I feel vindicated.


The establishment has circled the wagons around the Bank of Ireland and an attempt is under way to con investors into parting with their money for new toiler paper (shares in the bank) Last year the Government paid 1.50 for each share and forced the existing shareholders then to pay 0.50 cent for new shares .I predicted then that these shares were going to be worthless and I at the time put a 0.17 cent valuation on the new issue .Today there are worthless the bank is bankrupt and anyone buying this crap has themselves to blame .

Another article caught my attention and the was the article on Wicklow’s new TD .Stephen Donnelly and again I think the Phoenix are on to something .Do get a copy there is some great reading in it .

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Bank of Ireland (BoI) facts

Consider the following medley of Bank of Ireland (BoI) facts:
(a) On 19th February, 2011 BoI is required to pay a dividend to the National Pension Reserve Fund in respect of the NPRF’s residual holding of BoI preference shares. You’ll recall that in March 2009, the NPRF invested some €3.5bn in 8% yielding BoI preference shares. In May 2010, ~€1.7bn of the preference shares were converted to ordinary shares and the interest rate on the remaining ~€1.8bn went up to 10.25% per annum. That means that on 19th February, 2011 BoI needs to pay the NPRF interest on preference shares in the amount of €214m. Last year ordinary shares were paid to the NPRF in lieu of cash because the EU had apparently decreed that banks in receipt of state-aid couldn’t pay cash dividends.
(b) Just before Christmas, BoI secured permission from the Commercial Court division of the High Court to pay cash dividends from certain capital reserves.
(c) The EC decision on 15th July, 2010 approving BoI’s restructuring still hasn’t been published – at six months, the delay seems like a record.
(d) On 28th November, 2010 our handsomely-rewarded Financial Regulator published his new capital requirements for the four non-zombified Irish banks (AIB, BoI, EBS and ILP). BoI was to raise an additional €2,199m of capital by 28th February, 2011
(e) On 17th December, 2010 BoI announced the results of a debt swap which saw a contribution of €700m to its additional capital target. This meant that the target to be reached in February 2011 fell from €2,199m to €1.5bn. (company announcement here)
(f) In October, 2010 BoI needed pay a price of 5.9% interest per annum on a 3-year State-guaranteed €750m debt issuance.
(g) BoI’s share price today is €0.34 valuing the company at some €1.8bn.
(h) The estimated NAMA haircut on BoI’s loans was put at 42% by NAMA in September 2010 and 40% by the Minister for Finance in October, 2010. This haircut compares to 60% for AIB, 67% for Anglo, 70% for INBS and 60% for EBS. I have previously suggested on here that the BoI estimated haircut looks too low.
(i) The State already owns 36.5% of BoI through its conversion of preference shares in May 2010 and its receipt of ordinary shares in lieu of cash dividend (on the then 8% preference shares) in February 2010.
So where is BoI going to find €1.5bn (€2,199m capital requirement less €700m contribution from debt swap in December 2010) in the next 54 days? Un-announced asset sales? A new share issue? And what about the dividend it needs pay the NPRF on the preference shares? And what about the NAMA haircut?
It would seem from this distance at this vantage point that the only feasible investor will be our much put-upon pension reserve. And that will mean the State takes majority control of BoI – more than 65% by my calculations which are
Existing stake in BoI – 36.5% (5.3bn ordinary shares in issue * 36.5% = 1.9bn shares)
New share issue €1.5bn at €0.34 per share – 4.4bn shares
New share holding – (1.9bn + 4.4bn)/(5.3bn + 4.47bn) = 65.3%
And of course that is before the February 2011 dividend on preference shares and any additional NAMA-haircut-causing capital requirement. And the IMF has insisted on a bottom-up review of BoI’s non-NAMA loans and off balance sheet exposures by the end of March 2011. It is hard not to see from here how BoI will avoid a fate similar to AIB’s and may well end up on Enterprise Securities Market by the middle of this year.

source: http://namawinelake.wordpress.com/author/namawinelake/


I have just one word

“Derivatives”  (off balance sheet exposures)

Bank of Ireland come clean!

Is it time to let AIB go?

Allied Irish Banks' crest

Image via Wikipedia

Is it time to let AIB go?

namawinelake | November 2, 2010 at 11:51 am | Categories: Irish economy, NAMA | URL: http://wp.me/pNlCf-Kw

It sounds like the kind of decision a family around the death bed of a loved one faces. Though perhaps the comparison isn’t in the best taste, the reality is that the venerable 185-year old bank is facing insolvency and it is only the dogmatic government strategy of maintaining a duopoly of “Irish” banks not to mention over €10bn of public funds and significant ECB funds that is keeping the bank afloat. This entry examines the status of AIB and the cost of keeping it alive.

Firstly for our international friends, AIB is Allied Irish Banks PLC – note the plural “Banks”. It has nothing to do with the biggest failure in Irish corporate history, Anglo Irish Bank which is referred to domestically simply as “Anglo”. AIB was conceived in 1825 with the opening of a bank called Provincial Bank and over the next century and a half merged with other domestic banks to give us the Allied Irish Banks that we know today. Alongside Bank of Ireland it is seen as the rock of Irish banking.

During the property boom in the 2000s the bank was a late participant in the mania but there is evidence that once it arrived at the party it wasted no time in trying to catch up with the existing party-goers. The Minister for Finance estimates that the bank’s remaining NAMA loans are worth 40c in the euro (including long term economic value).

Its most recent set of accounts for the first six months of 2010 show that the bank had assets of €169bn, liabilities of €160bn and capital of €9bn. So it is a huge business in an Irish context but clearly solvent by reference to these results. Unfortunately the results don’t reflect the true condition of the loan assets. The cumulative provision for losses on NAMA loans in the interim results was 26% – that is, the loans were worth 74c in the euro. The most recent ministerial estimate is 40c in the euro. This should result in a further loss to AIB of €5.5bn. But NAMA loans form a small part of AIB’s total loanbook and the company will have some €81bn of non-NAMA loans (plus €4.5bn of €5-20m formerly NAMA loans) once NAMA has absorbed the poison. The cumulative provision on these loans in June 2010 was just €3bn (note 22 on page 83). Given that these loans include commercial property and business lending in a state which has suffered the greatest contraction in GDP amongst developed countries in modern times, I would suggest that provision is utter fantasy.

Like some shady cash-in-hand sole trader, AIB maintain a second set of books under the auspices of the Financial Regulator who in March this year set out the capital requirements for AIB and other banks (the Prudential Capital Assessment Review). In September using this second set of books, the Regulator announced that AIB needed raise €10.4bn by the end of this year. AIB’s strategy was to dispose of some assets and then to raise additional equity underwritten by the State. There is a detailed entry on these capital raising efforts here but in summary the bank disposed of its Polish operation (still subject to approvals) which yielded €2.5bn capital from the €3.1bn sale price and yesterday AIB held an EGM in which shareholders approved the sale of the bank’s stake in US bank M&T which should add €0.9bn to the capital coffers. The bank announced yesterday that it was placing the sale of the UK operation on hold (though there appears to be some back-pedalling on these comments this morning). Unless there is some dynamic between the UK sale and capital that means that the bank still needs €7bn in new capital in the next 60 days. And there is only sucker with that level of available funding that is willing to invest in what is likely to be an insolvent bank, and that’s the government who seem intent on placing just under one half of our National Pension Reserve Fund (that’s the €3.5bn invested in preference shares last year and the €7bn now needed as a proportion of the €24bn funds in the NPRF) in one basket (case) – AIB.

The government strategy seems chauvinistic (“we need a duopoly of Irish banks”), knee-jerked, immoral (not a word you’ll often see on here but taking money from the pension fund to prop up an insolvent bank is flagitious when there are other options to protect a functioning banking system), recklessly risky (one half of the pension fund is “invested” in one company in one sector). AIB should be taken into 100% state ownership immediately, the State should assess the value of any shareholdings in AIB (I expect they are worth nothing), negotiate with the €4bn+ of junior bondholders the company had at June 2010 and assess if senior bondholders might make a contribution to the insolvent bank. Only then should the State assess the systemic importance of AIB and should probably seek a buyer for the rump of that company. Even if the state is left with only one Irish bank so what? We have a Financial Regulator with 520 staff that should be able to regulate a restricted market to combat uncompetitive practices and when the Irish economy recovers other banks may see prospects here.

If on the other hand, we maintain the pretence that AIB is a viable bank then €7bn will need be found in the next 60 days. At the very best we are set to lose €1.8bn if we continue with the madness of the NPRF underwriting a share issue at €0.50 per share when the shares are presently trading at €0.35. With the healthiest Irish bank, Bank of Ireland, having to borrow 3-year funds at 5.875% last week (excluding costs) in a market where mortgages and commercial lending is still available at 3%, the prospects for profitability at AIB are slim in the context of the NPRF’s investment strategy which allows it invest in any market across the globe.

It is time to say our goodbyes and pull the plug.

source http://namawinelake.wordpress.com/2010/11/02/is-it-time-to-let-aib-go/


Unfortunately this government is hell bent on holding on to this once trophy bank along with the top notch gangsters and X Politicians at the helm who will not vote themselves out of this sought after gig

Since the Minister of Finance himself says that the still remaindering loans are only worth 40c in the euro this alone tells me that the bank is gone beyond repair, as every one of his pronouncements on figures have been totally out.  I expect that you wouldn’t even get 10 cent on the euro The cost is irrelevant as the down trodden taxpayers are going to pay up.This Bank is dead and powering billions into it is tantamount to treason.

Shut this toxic toilet down now and save us the poor taxpayers a little bit of pain!


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