AIB abusing Irish Tax payers?

[121.5]

AIB scam on Irish taxpayer

AIB to bolster capital in bonds exchange deal - The Irish Times - Fri, Jun 12, 2009

AIB plan to buy back as much as €2.8 billion of bonds from investors at a discount in return for more secure debt.

The move by the bank will improve the quality of capital within the bank’s reserves but will not increase its overall capital.

The bank is taking advantage of the steep discounts on offer in the debt markets to improve capital by buying back bonds.

Financial institutions are trying to bolster their core tier-one capital, regarded as the loss-absorbing capital, in debt swap or buy-back deals that reduce lower quality loans that are regarded by the market as almost worthless for protection against losses.

AIB is offering to buy back the bonds at between 50 and 67 per cent of their face value, at a premium above the current indicated price of 35 to 55 per cent of their face value in the debt markets.

Investors will sell out of perpetual notes in return for dated bonds in what the bank calls a “liability management exercise”.

The offer will appeal to some investors who are seeking to cash out on investments in illiquid and heavily discounted debt markets.

The profit generated by the transactions will go to the bank’s capital reserves and will be treated as core tier-one capital, the type of reserves that regulators insist banks must hold to protect depositors against unforeseen losses.

“It could boost capital by between €700 million and €900 million, depending on pricing and take up,” said, Kevin McConnell, analyst at Bloxham Stockbrokers.

Investors who want to participate in the deal must apply by next Friday which means the bank may able to post within the first half of its financial year improving its capital reserves in its half-year results.

Bank of Ireland bought back debt in a recent cash deal, with a take-up of 55 per cent among investors. A similar level of interest in AIB’s deal would generate a gain of €760 million. A 66 per cent take-up could leave AIB with a profit of €900 million.

Bank of Ireland bought back at a discount subordinated bonds with a face value of €1.26 billion in the transaction earlier this month.

Shares in AIB rose 12.6 per cent, or 25 cent, to €2.23, its highest level since January 13th, two days before the Government nationalised Anglo Irish Bank.

Yesterday’s closing share price values AIB at €1.9 billion, €300 million lower than the value of Bank of Ireland.

AIB said in April that it may sell assets to raise a further €1.5 billion in capital – in addition to the €3.5 billion invested by the State in the recapitalisation deal – after Government stress tests showed that the bank needed to strengthen its capital reserves further against losses.

The debt deal will contribute to the additional capital-raising exercise. The bank is expected sell its stakes in Polish subsidiary Bank Zachodni and US bank MT.

“We see today’s announcement as a good start to the group’s plans, with the remainder of the required gains expected to be realized through disposals in the second half of 2009,” said banking analysts at London firm Keefe, Bruyette Woods.

The new bonds, which will count as lower tier-two capital, are expected to be rated A1 by Moody’s and A- by Standard & Poor’s. Fitch assigned a BBB+ rating to the bonds.

The real problem here is that bond holders are trading inferior bonds in for superior ones, this is actually a better deal for current bond holders, Do not let the early redemption discount fool anyone.

This is another bad deal for the Irish tax payer guarantor.

Where is the outrage?

[Dios]

Where is the outrage?

Building. There is a riptide of anger growing among the electorate, it merely has yet to show itself.

[121.5]

Building. There is a riptide of anger growing among the electorate, it merely has yet to show itself.

no one here seems to care either.....

[athlonedub]

Hmm perhaps the outrage is not these as this is actually quite a GOOD deal for Irish taxpayers !

Lets work from the basis that no party of any political hue is willing to let BOI or AIB collapse. Agreed? (Well, certainly I dont recall anyone proposing this!).

Secondly, there is no proposal that I am aware of from any of the parties that these banks default on any element of their capital structure (Tier 1, 2 or subordinated etc).

However the markets believe that this will happen to a certain extent. Hence these bonds are trading to a discount at par. In other words, the market believes that there is some chance of a default.

Now the banks, go out and buy these at a discount and make a profit. In other words, if the debt has a gross value of 1bn, they are buying it back in some instances for 500m and thereby making a profit.

This has 2 plusses for the State. (a) it improves the bank's balance sheet by putting more capital in (they have got rid of 1bn debt and replaced it woth 500m debt and 500m property) - and the State are shareholders so investment value goes up and

(b) it reduced the amount of capital that the State may have to put in , since the balance sheet has improved.


Imagine if we were able to do this with the National Debt !! Reduce it at a stroke to a little over half ! The reason we cant is that irieland's bonds are not trading at any kind of the same discount.

If one accepts the premise that no political party is going to let AIB or BOI default on any of their capital obligations (as this would be perceived as soverign default), then this is really good news from an economic prespective.

[121.5]

this deal increase the real liability of the tax payers as it places 'renegotiated' bonds under the Bank Guarantee structure

Bonds that otherwise would not neccesarily have to be honoured by Ireland should the banks default

I am amazed that people are buying into the spin

[sheamuseen]

Where is the outrage?

the electorate don't understand what's being done.

[daithimac]

how is the tax payer being screwed by this

[SamVimesBoots]

There's a reason the debt is trading at such heavy discounts!

I still say both AIB and BOI are almost certainly actually insolvent and are only being kept afloat by accounting trickery shenanigans at the taxpayers expense. Neither have made any real attempt to come clean on the likely scale of bad debt losses over the next few years - because coming clean would immediately wipe out their core capital and drive them into receivership.

The entire machinery of the State and the future of every taxpayer is now being directed towards keeping these turkeys afloat in the desperate hope that it is indeed "just a blip" and by the end of 2010 we'll be back to rapid growth in employment, spending, overall activity and 20%pa house price increases.

This insane delusion is what is driving the entire economic policy of this Government, and will inexorably lead to sovereign default as the true scale of the bad debts are eventually and inevitably declared and crystallised.

This is insane, it's collective suicide, and there appears to be no way to stop it happening!

[121.5]

how is the tax payer being screwed by this

are you being dismissive or do you genuinely want me to explain in simpler terms?

[athlonedub]

There's a reason the debt is trading at such heavy discounts!

I still say both AIB and BOI are almost certainly actually insolvent and are only being kept afloat by accounting trickery shenanigans at the taxpayers expense. Neither have made any real attempt to come clean on the likely scale of bad debt losses over the next few years - because coming clean would immediately wipe out their core capital and drive them into receivership.

The entire machinery of the State and the future of every taxpayer is now being directed towards keeping these turkeys afloat in the desperate hope that it is indeed "just a blip" and by the end of 2010 we'll be back to rapid growth in employment, spending, overall activity and 20%pa house price increases.

This insane delusion is what is driving the entire economic policy of this Government, and will inexorably lead to sovereign default as the true scale of the bad debts are eventually and inevitably declared and crystallised.

This is insane, it's collective suicide, and there appears to be no way to stop it happening!

You haven't addressed the basic premise. No party has a stated policy of letting either BOI or AIB default on ANY element of their capital structure.

To be clear this is not an Irish issue or an Irish approach - post Leahmans, it aint going to happen.

It would be great if AIB or BOI could do it - wonderful in fact ! But in the real world , this is a good move.

Maybe we need George Lee on here to confirm it and that would convince people!!