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Jed Rakoff is quite the hero. A New York District judge, he has done what the rest of us would love to do, and busted a cosy deal between bankers and their regulators. In early 2007, just when everything was starting to slide, the caring, sharing boys at Citigroup assembled a $1bn fund of, ahem, less-than-prime mortgage-backed securities. As Judge Rakoff explained.
That allowed [the bank] to dump some dubious assets on misinformed investors. This was accomplished by Citigroup’s misrepresenting that the fund’s assets were attractive investments rigorously selected by an independent investment adviser, whereas in fact Citigroup had arranged to include in the portfolio a substantial percentage of negative projected assets and had then taken a short position in those very assets it had helped select.
Bank of Ireland fell deeply into the red in the first half of the year as higher funding costs wiped out more than a quarter of its net interest income, the FT reports. A 21 per cent fall in bad debt impairments failed to offset the squeeze, leaving Ireland’s biggest lender with a pre-tax loss for the six months to June of €556m, compared with a €116m profit a year earlier. Bank of Ireland said that after excluding exceptional and non-core items, the bank’s loss for the period was €723m, compared with a negative €1.3bn in the first half of 2010. Richie Boucher, chief executive, said: “Funding costs and government guarantee fees continue to place pressure on operating income but our net interest margin is broadly in line with expectations.” The bank’s revenues were also hit by a collapse in the investment performance of its life assurance unit, where a €189m gain a year ago turned into a €115m loss. Mr Boucher blamed the result on the performance of Irish sovereign bondholdings.
Bank of Ireland has been saved from possible government control by a group of overseas institutional investors that has agreed to buy up to €1.12bn ($1.6bn) of the troubled lender’s shares, the FT reports. Wilbur Ross, the US billionaire, a large Canadian firm and a number of US fund managers are thought to be among the investors that have committed to buy a stake of up to 37.3 per cent in the bank. The agreement came a day before the planned completion of a €1.9bn rights issue that could have pushed the government’s 36 per cent stake up to almost 70 per cent.
After a very vocal campaign highlighting the unfairness of Bank of Ireland’s proposed exchange offer for subordinated debt — which included £75m worth of so-called Pibs that the Irish bank inhereited from Bristol & West held that are mostly held by pensioners– it looks like a victory has been declared. Read more
More hedge funds than pensioners in the lawsuit filed against Bank of Ireland over the weekend:
Quite a bombshell in Bank of Ireland’s latest, after-hours update on its bid to raise €4.35bn in capital to plug crisis losses:
If stockholders approve the proposals, the combination of the proceeds of the Rights Issue, together with any Core Tier 1 capital raised through the [Liability Management Exercise], the exercise of the call options under any amended terms of the existing securities, the further burden sharing with subordinated bondholders anticipated by the Minister in his statement on 31 May 2011 and the issue of the Contingent Capital Instrument will be sufficient for the Group to meet the regulatory requirements established by the Central Bank under the March 2011 PCAR.
From Bank of Ireland’s just-published annual report for 2010:
The Central Bank requires that banks have sufficient resources (cash inflows and marketable assets) to cover 100% of expected cash outflows in the 0 to 8 day time horizon and 90% of expected cash outflows in the 8 day to 30 day time horizon. The Group notified the Central Bank of a temporary breach of regulatory liquidity requirements in January 2011 (that breach was remediated in January 2011) and a breach in April 2011. The breaches have been associated with the contraction in unsecured wholesale funding, changes in the eligibility criteria of the ECB and increased usage of Monetory Authority funding. The Actions agreed with the Central Bank to de-lever the balance sheet post the PLAR exercise are expected to reduce the Group’s funding and liqudity risk.
Ireland’s stricken banking sector will require €24bn in additional capital, pushing the total cost of the government’s rescue to about €70bn (£62bn), according to the country’s latest banking “stress tests”, reports the FT. Also on Thursday, Dublin announced a radical shake-up of the industry aimed at restoring confidence in the troubled sector, which remains dependent on the European Central Bank for funding. Allied Irish Banks, which had been told to raise an additional €5.3bn, must now raise €13.3bn. Bank of Ireland must raise €5.2bn, Irish Life & Permanent €4bn and Educational Building Society €1.5bn. Essentially, says the WSJ, Ireland is on track to nationalise its banking sector, belying politicians’ claims that the tests are the final episode in the country’s banking crisis.
Stress tests on Ireland’s four main lenders will reveal a capital hole of around €20bn (£17.6bn) in results to be published on Thursday of tests on Bank of Ireland, Allied Irish Banks, Irish Life & Permanent and EBS Building Society, reports Reuters, citing the Sunday Business Post. Earlier, the FT reported that Ireland is trying to secure a deal with the European Central Bank to contain the country’s banking crisis after the test results are published. Dublin wants about €60bn ($85bn) in medium-term funding from the ECB to replace emergency help from Ireland’s central bank. But the ECB is demanding that Dublin first honour its pledges to recapitalise its banks – and could threaten to cut off support. The standoff presages a fraught week for the new government of Enda Kenny, the Irish prime minister, with missteps likely to weaken investor confidence in Irish banks and the eurozone’s stability.
Surprise! More burdensharing for Irish bank bondholders is here.
Only, it’s rather softer. The considerate side of burdensharing, if you like. Read more
Now, this a relief rally.
Allied Irish/Bank of Ireland CDS, via Markit.
Statement released late on Sunday night, in which Ireland’s (ahem) strongest lender says it will try to raise €2.2bn from existing shareholders, internal capital management and in the markets.
But just in case it should fail (and note there’s a few other Irish lenders that need to raise some cash sharpish) the government and its SWF are standing by ready to make up the shortfall. (emphasis ours). Read more
Ireland’s three largest banks could receive an immediate cash injection of about €12bn (£10bn) from the government and be given access to a much larger pool of rescue funds, as they grapple to meet the tough new capital requirements that are expected to form part of Ireland’s bail-out package, the FT reports. European authorities are still thrashing out the details of how much capital would be needed to lift the banks’ core tier one capital ratios to 12 per cent – the likely new level under the terms of the rescue package. But analysts at Credit Suisse have estimated that the two state-backed banks, Allied Irish Banks (AIB) and Bank of Ireland, could need €3bn and €1.5bn respectively, while as much as €7.5bn may be required to strengthen already-nationalised Anglo Irish Bank. The capital injection could push the Irish government’s stake in Bank of Ireland up from 36 per cent to more than 80 per cent and effectively nationalise AIB.