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Thread: Noonan, Bank of Ireland and the Markets - good deal?

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    Politics.ie Member Howya's Avatar
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    Default Noonan, Bank of Ireland and the Markets - good deal?

    Irish Times has reported that the Government has sold off its €1billion capital notes that it holds in Bank of Ireland
    State sells €1 billion of BoI notes - The Irish Times - Wed, Jan 09, 2013

    Is this another deal where the "Markets" have taken advantage?

    The loan notes pay 10% annual interest. It is a pretty safe bet for a new investor knowing that if BoI got into trouble down the road that the Government woud step in to shore up the capital base. So in effect the markets have bought (in all but name) a government backed bond at 10%. Why would the government sell now when the markers are open for funding?
    “Still paying, still to owe. Eternal woe! ” ― Paradise Lost, John Milton

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    On an article relating to this on the RTE website Michael Noonan was trumpething the fact that this money was making a generous 10% per annum since it was invested in July 2011. If the return was so good why was it decided to sell it? Does the new buyer make 10% per annum? Nice return if you can get it.

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    Quote Originally Posted by BrightDay View Post
    On an article relating to this on the RTE website Michael Noonan was trumpething the fact that this money was making a generous 10% per annum since it was invested in July 2011. If the return was so good why was it decided to sell it? Does the new buyer make 10% per annum? Nice return if you can get it.
    Because it was the time to sell?

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    Politics.ie Member hammer's Avatar
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    Amazing, we should have left the money in Bank of Ireland !!!!

    You cant keep everyone happy

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    Quote Originally Posted by Howya View Post
    Why would the government sell now when the markers are open for funding?
    Because government should not be investing in banks with our money? If I want to invest in a bank I will do it myself.

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    Quote Originally Posted by Howya View Post
    Irish Times has reported that the Government has sold off its €1billion capital notes that it holds in Bank of Ireland
    State sells €1 billion of BoI notes - The Irish Times - Wed, Jan 09, 2013

    Is this another deal where the "Markets" have taken advantage?

    The loan notes pay 10% annual interest. It is a pretty safe bet for a new investor knowing that if BoI got into trouble down the road that the Government woud step in to shore up the capital base. So in effect the markets have bought (in all but name) a government backed bond at 10%. Why would the government sell now when the markers are open for funding?
    It's a subordinated bond. If BOI gets back into trouble the holders of this will get wiped out. While holding the bond the State had that risk, now some private investors are carrying the risk.

    The bond yields 10% which is pretty big but it comes with the risk of being wiped out. The state should not be investing in such risky assets so while the State won't be earning €100 million of interest we now we have a €1 billion of cash and a big reduction in risk.

    It is only a guess but I would think that Moody's would look at the government's balance sheet and see a couple of billion of these subordinated bonds on board and say "you want us to raise the sovereign rating above 'junk' when you are holding this risky stuff. Get rid of that stuff and come back to us."

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    Politics.ie Member Howya's Avatar
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    And BoI tapped the markets for a €1bn back in Nov '12 at an interest rate of just over 3% for a 3 year note - at that yield the loan note just sold should be worth well over a €1bn
    “Still paying, still to owe. Eternal woe! ” ― Paradise Lost, John Milton

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    Quote Originally Posted by Trainwreck View Post
    Because government should not be investing in banks with our money? If I want to invest in a bank I will do it myself.
    Agreed - but once that money is in, then better getting a decent return than taking the money out.
    “Still paying, still to owe. Eternal woe! ” ― Paradise Lost, John Milton

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    Quote Originally Posted by Taxi Driver View Post
    It's a subordinated bond. If BOI gets back into trouble the holders of this will get wiped out. While holding the bond the State had that risk, now some private investors are carrying the risk.

    The bond yields 10% which is pretty big but it comes with the risk of being wiped out. The state should not be investing in such risky assets so while the State won't be earning €100 million of interest we now we have a €1 billion of cash and a big reduction in risk.

    It is only a guess but I would think that Moody's would look at the government's balance sheet and see a couple of billion of these subordinated bonds on board and say "you want us to raise the sovereign rating above 'junk' when you are holding this risky stuff. Get rid of that stuff and come back to us."
    It was noted that it was Tier 2 capital with equity conversion rights - I don't know if that is the same thing as a subordinated bond?
    “Still paying, still to owe. Eternal woe! ” ― Paradise Lost, John Milton

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    Quote Originally Posted by meriwether View Post
    Because it was the time to sell?
    Based on what? we just raised €2.5bn in the markets.
    “Still paying, still to owe. Eternal woe! ” ― Paradise Lost, John Milton

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