Only in Ireland: cut your profits, run your losses

The faces may have changed but financial blunderers are still running the show in Dublin. The latest folly: selling one third of the best bit of their banking system for €1bn — after spending more than €60bn on the worst.

  • 26 Jul 2011
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A group of private investors agreed on Monday to invest up to €1.123bn in Bank of Ireland, buying up to 37% from the government, which has just underwritten an €1.9bn rights issue.

Before the latest deal was struck, the rights issue was likely to have left the state with a 67% stake in the bank, as private shareholder take-up (which will be revealed later this week) was expected to be low. But instead, Ireland will have a minimum stake of 15% stake and 32% at most.

So, with the new group buying shares at a price rejected by the stockmarket, Ireland must have got a good deal, right? It was certainly billed as a statement of faith in Ireland’s recovery. “Tangible proof of growing international confidence in the future prospects of both Bank of Ireland and the Irish economy” was how the ministry of finance described it.

The ministry is proud of the fact that it has reduced to below €18bn the requirement to provide a system-wide €24bn of capital — as a result of its prudential capital assessment review in March, and additional to the €46.3bn it had already spent. That means that it can fund the whole lot from the national pension fund, rather than having to borrow from the European Union/International Monetary Fund programme, which had set aside €35bn for the purpose.

Bank of Ireland liked the deal, too. It keeps the institution in majority-private hands, avoiding the stigma of state control. As such, it will be the only Irish financial institution that hasn’t been nationalised through the crisis.

But look closer and the trade couldn’t be any worse for the taxpayer.

Ireland has just spent €14.8bn nationalising Allied Irish Banks. The only thing to be said about that deal is that at least it’s better than the €29.3bn disaster that was Anglo Irish Bank.

Then the country pumped another €1.9bn into BoI through the rights issue. And someone offers to take a chunk of it from them, for only the €0.10 price the government has literally just paid for it.

Why sell? Bank of Ireland has upside — Ireland keeps telling the world that the firm will be one of two pillars of its banking system (the second being Allied Irish Banks), that it now has the capital it needs and that operating profits are on the way up. Indeed, if the government’s economic forecasts are met, Bank of Ireland is a sure-fire winner.

What’s more, holding the stock is cheap for the state — and certainly cheaper for Ireland than for any private investor — since it has access to the ever-expanding balance sheet of its European partners who only last Thursday pledged (again) to fully support bank recapitalisation efforts. They even offered to charge less interest for the privilege.

And Ireland has not even mitigated the downside risk: it continues to bear the risk of an economic deterioration leading to heavier loan losses. Michael Noonan, minister for finance, said that the deal underlined "how we are successfully breaking the link between bank risk and the sovereign.” But who else apart from Noonan will be underwriting the next capital raise? Who else guarantees the deposits and wholesale liabilities?

And where does all the upside go? Straight out of the country, to those international investors the government is so pleased to have found.

Cutting one's losses is rarely a bad idea. But running your losses while cutting your profits appears to be a peculiarly Irish take on the idea.

  • 26 Jul 2011

Bookrunners of Global Covered Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 25 Oct 2016
1 UBS 11,498.67 72 6.01%
2 HSBC 10,710.61 60 5.60%
3 BNP Paribas 9,831.12 47 5.14%
4 Credit Agricole CIB 9,513.58 45 4.97%
5 Commerzbank Group 9,052.55 54 4.73%

Bookrunners of Global FIG

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 24 Oct 2016
1 JPMorgan 83,632.79 365 6.90%
2 Citi 78,369.17 439 6.46%
3 Morgan Stanley 71,293.89 310 5.88%
4 Goldman Sachs 68,728.80 354 5.67%
5 Bank of America Merrill Lynch 67,654.98 332 5.58%

Bookrunners of Dollar Denominated FIG

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 25 Oct 2016
1 JPMorgan 66,103.08 263 10.70%
2 Citi 63,508.84 343 10.28%
3 Bank of America Merrill Lynch 56,965.71 282 9.22%
4 Morgan Stanley 50,049.01 235 8.10%
5 Wells Fargo Securities 47,073.69 227 7.62%

Bookrunners of Euro Denominated Covered Bond Above €500m

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Credit Agricole CIB 8,094.29 29 8.17%
2 BNP Paribas 7,155.53 27 7.22%
3 UBS 6,774.88 24 6.84%
4 UniCredit 5,793.45 23 5.85%
5 LBBW 5,728.28 22 5.78%

Global FIG Revenue

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 02 May 2016
1 Morgan Stanley 365.83 497 7.62%
2 JPMorgan 332.66 618 6.92%
3 Bank of America Merrill Lynch 299.89 590 6.24%
4 Goldman Sachs 276.71 375 5.76%
5 Citi 264.54 592 5.51%

Bookrunners of European Subordinated FIG

Rank Lead Manager Amount €m No of issues Share %
  • Last updated
  • Today
1 BNP Paribas 6,662.83 23 9.67%
2 UBS 6,524.55 26 9.47%
3 HSBC 6,275.95 20 9.11%
4 Barclays 5,522.64 16 8.02%
5 Citi 4,577.05 23 6.65%