Pensioners in legal revolt over Bank of Ireland restructuring terms
A group of British pensioners is to mount a legal challenge against a refinancing deal being struck by the Bank of Ireland that could see them lose up to 80pc of their savings.
The 2,000 British savers are set to file legal papers against the bank over its handling of a €2.6bn (£2.3bn) financial restructuring.
One part of that restructuring relates to permanent interest bearing shares (PIBS) issued by Bank of Ireland subsidiary Bristol & West worth £75m.
Under the bank's restructuring plan investors in the PIBS will be offered just 20p out of every pound invested in the shares. The offer is only open to those investors who vote in favour of the restructuring. If investors vote against it and the plan is passed they will get just one penny for every £1,000 they had invested in the PIBS.
Investors in the shares claim that this structuring of the vote unfairly punishes those who chose to vote no, thus skewing the outcome. They are asking for British courts to take jurisdiction over the issue.
The details of the offer by Bank of Ireland as part of its "liability management exercise" include a possible 40pc payout but only for people holding over €50,000. It would be paid in bank equity.
Although investors with less than €50,000 would not be able to take part in the more generous offer the bank said they could club together to hit the threshold.
The PIBS were very popular with pensioners as they paid interest at 13.4pc, helping boost incomes.
A spokesperson for Bank of Ireland said: "The bond in question is a capital instrument and is not a retail savings product. The higher risk associated with such capital instruments was reflected in the high interest rate of 13.375pc per annum, and the discount to par at which the bond was trading ahead of the announcement of the liability management exercise."
The bonds were initially issued by Bristol & West in 1991. The liability switched to Bank of Ireland when it took over Bristol & West in 1997.
The spokesperson for Bank of Ireland said: "In the context of the €2.6bn liability management exercise, the treatment of the Bank of Ireland 13.375pc Perpetual Undated Bond is consistent with that of other subordinated debt instruments.
"An offer is made to exchange into equity at 40pc plus accrued interest, whilst an offer is made to exchange into cash at 20pc excluding accrued interest.
"Whilst – for Prospectus Directive reasons – the equity exchange at 40pc is not open to bond investors with holdings converting to less than €50,000, should they choose to do so such investors are free to sell those bonds to larger investors who can participate in the equity exchange."
The financial restructuring which threatens to wipe out the bulk of the £75m investment has been undertaken by Bank of Ireland as part of its bail-out by the Irish Goverment.
The legal challenge on behalf of the 2,000 investors is being brought by US law firm Brown Rudnick.
Investors, many of whom inherited their stakes, have until June 22 to respond to the proposal from Bank of Ireland. After that date the 20pc offer is being withdrawn and will be replaced by a reduced offer.