Business Irish

Tuesday 12 December 2017

How the new bondholder deal will affect you . . .

Thomas Molloy

I am one of those unfortunates who owns a few Bank of Ireland shares. What's happening here and what does it mean to me?

Every citizen owns BoI shares thanks to the last government's "investment" in the bank. Basically, BoI is saying to lenders who used to get high-interest repayments that they will get between a 10th and a fifth of their money back.

Sounds sensible. So why did my shares fall to record lows?

The shares fell for two reasons; the first is that the bank plans to create lots more shares to give to bondholders who decide they would prefer shares to money. Secondly, the bank didn't bother to explain in detail what it is doing, so everybody is nervous. The devil is in the detail.

But will my shares rise if none of the bondholders accept shares instead of money?

I'm afraid not. If the bondholders don't take the shares, the shares have to be diluted anyway, because the capital still needs to be raised. It's a case of heads you lose, tails you lose.

Why is the bank doing this if it is bad for the share price and the bondholders?

It has to raise €5.2bn to avoid falling into state control before the end of July.

So how much money will the bank save by doing this?

The bonds have a face value of around €2.6bn. If you knock off 20pc, that suggests they will wipe out debts of more than €2bn.

Why doesn't everybody do this? Seems like a great idea.

You can only shaft the bondholders if you are bust. The bank argues that it would be effectively finished without state aid.

Is this a done deal or just more pie in the sky?

Well, the bank has the backing of the government. The High Court is due to begin hearing a separate but similar case about AIB's bonds tomorrow. If the government loses its case we'd be back to square one.

Q: What will this do to the state's stake?

A: It will be worth even less than it was; close to nothing.

Irish Independent

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