On being thankful

Even though there was a huge vote in favour of accepting the PMS rescue package, I have received some emails and phone calls from those who continue to be unhappy about the resolution. The more I think about it, the more thankful I am for what has been achieved. Other savers in Ireland have lost 80% and 90% of their savings, as this story from the Irish Times illustrates.

BANK OF Ireland, Irish Life & Permanent and EBS have joined AIB in announcing plans to impose losses of as much as 90 per cent on junior bondholders.

Minister for Finance Michael Noonan said the move to “burn” the junior, or subordinated, bondholders was in line with Government policy to achieve “appropriate” contributions to the recapitalisation of the banks from investors.

“These financial institutions are remaining solvent due to the ongoing overwhelming financial support of the State. Without this support, subordinated bondholders’ entire investment would have been irrecoverable,” he said.

The offers propose bigger haircuts on bondholders than had been expected by market analysts.

Although the offers are voluntary, Mr Noonan warned that the levels of burden-sharing proposed by the banks were “the minimum acceptable”. If they did not help recapitalise the banks as expected, the Government would take alternative steps under the existing legislation to ensure that haircuts were imposed on the bondholders. This would result in “severe measures” being taken in respect of the subordinated debt, he warned.

Mr Noonan is already facing a High Court challenge by two investors against a subordinated liability order in relation to AIB. The order allows him to change terms, conditions and maturity dates on its subordinated bonds.

The case taken by Aurelius Capital Management and Abadi Co – both New York-based fund managers – will be heard tomorrow. Yesterday, Mr Noonan reiterated his view that the challenges were “entirely unfounded”.

Bank of Ireland said it would launch a liability management exercise covering €2.6 billion of its subordinated debt. The plan will be structured so that subordinated bondholders contribute around €2 billion of its regulatory requirement to maintain Core Tier 1 capital of €4.2 billion.

The bank was ordered earlier this year to raise €5.2 billion, including €1 billion in contingent capital. The bank said its expectation was that it would offer subordinated bondholders 10 per cent of the nominal value of Tier 1 securities and 20 per cent of the nominal value of Tier 2 securities, in exchange for cash, with no settlement for accrued interest.

The bank said it might also offer an equity-swap alternative at a premium to the cash offer, with a payment of accrued interest.

“We were expecting the terms of the offer to be bad, but this is worse than expected,” said Stephen Lyons, fixed-income analyst with stockbroking firm Davy.

“Another approach would have to been to engage with subordinated bondholders and not leave such a bad taste in the mouths.”

The Irish Life & Permanent plan involves a cash offer in respect of €840 million of its subordinated debt. It said it expected to offer 20 per cent of the nominal value of most of the securities, with no settlement for accrued interest. Holders of one security will be offered just under 9 per cent. The lender needs to raise €4 billion to satisfy regulatory thresholds.

EBS Building Society, which must raise €1.5 billion, said it would offer to buy back €160 million in junior securities due in 2014 and 2016, as well as £30 million in fixed-rate subordinated securities due in 2019. The haircut imposed will be 80 per cent.

EBS said it will seek to pass an extraordinary resolution to amend terms of bonds so that holders who refuse to take up the offer may be paid just 1 cent in the future for every $1,000 of debt.

The success of the exchange offer will determine how much banks need to raise from a share sale.

14 Replies to “On being thankful”

  1. A timely word,Stafford,but what’s new? Our Lord had the same problem with the lepers.

  2. The outcome achieved had the support of 99 percent of PMS savers. In the Administrator’s opinion every saver stands to receive more back under this outcome than in a firesale.

  3. Dr Carson, you are so right! As mentioned in a previous posting by me, the value of my pension funds has dropped by 30% in the last three years and this is not uncommon among private pension funds

  4. Dare I suggest the reason there was a large vote (from those with much more than £20,000 in the PMS) in favour of the rescue package was, that had it not been accepted the goverment and the church were going to withdraw their offer of help, neither did anyone want to see those who had under £20,000 receive nothing. Much of the discontentment I believe is due to all savers not receiving the same percentage of their savings back. Loosing 23% of all your much needed savings while all those, many who were financially well off receive 100% of thier money back. I accept there were some small and large savers in financial difficulty but this is where the 10% deferred payment should have been directed. Perhaps someone could explain why a solution was to favour some over others, and is as unfair as the original court decision. On what basis was ‘need’ determined?
    The article quoted above seems to be referring to investors-I believe those with money in the PMS were savers?

  5. With 10,000 members there are many and differing personal situations. Administrator was never going to please everyone. When we read documents it is clear from John McFall’s report and subsequent government responses, any help was always going to be weighted towards smaller savers. The useful and sensible lobby groups strength of argument was based on this, help for the weakest. On the matter of us larger savers loosing 23%.I am more optimistic than Joan. What we now need is a concerted effort aimed at those who are not making repayments. In past four months admistrators brought in almost £7m. Thanks to all who have honoured committments! Those of us who have willingly taken on the heavy lifting now look to adminstrator and lobby groups to rigourously pursue debtors. The figures are clear, if debt is repaid we will have 100% return.

  6. Pms saver has it ever crossed your narrow mind that some debtors are also finding it difficult to repay or raise monies to clear their debt. It seems to me that you tend to put all the responsibilty on the debtors as if it was their fault the PMS went into administration in the first place. I believe though it was the larger savers withdrawing their money and only thinking of themselves that was to blame.I wonder to myself if you had the chance again would you have done the same over your fellow saver.Why instead of hunting down the debtors like dogs do you not pursue the people who approved the loan applications namely the directors

  7. Also a Presbyterian. I do not wish to abuse this very useful forum. We are almost three years into administration and no one has been pursued like a dog. Arthur Boyd is a very reasonable individual, if you have personal difficulties I would urge you to contact him. You may well have a point about how directors processed and approved loans. The fact remains if you or any other customer of PMS entered into a binding and legal agreement it is your responsibility.

  8. Scrape the surface of PMS Saver and we can all see the legalism within. Those who owe money to the PMS are not, and were not, part of the problem. PMS Saver presents the law. Have some people learned nothing from this debacle. I remember PCI leaders attempting to use the law to distance themselves from the PMS crisis. I remember a large creditor of the PMS going to law in an attempt to get his money back before the majority of shareholders. The law, the law, those in the law know it offers little more than a living for lawyers.

  9. Administrators report dated 15th December 2009. Page 9 paragraph 4.1 Loan Book Advances to Congrgations £10m estimated recovery £10M advances for own homes £8m estimated recovery £7m House for Sale £3m estimated recovery £2m Agricultural Land £25m estimated recovery £21m Oher forms of security £3m Estimated recovery £2m Buy to lets £24m estimated recovery £17m commercial property £17m recovery £9m Building and development land £86m recovery £34m. “Those who owe money to the PMS are not, and were not part of the problem” Nonsense .

  10. PMS Saver, the figures you quote are 18 months old. Surely the most relevant figure now, is the £225,000,000 that the government is providing for PMS savers, savers including you. A figure that more than covers the shorfall you refer to above. You don’t appear to have much sympathy for people who may be struggling to pay what they owe in these hard times. Those who borrowed from the PMS were not responsible for the PMS crisis, nor are they are a problem to be pursued through the courts. The consensus among PMS savers is that failures by the directors and a fatal regulatory gap were responsible for the problem.

  11. John Lewis.No one from DETI or any government regulatory body has been charged with any offence whatsoever regarding what John McFall desribed as a fatal regulatory gap. Of 21 Directors five and the secretary will face disqualification if found guilty. We must await courts decision. These facts do not point to consensus. Granted figures quoted were 18 months old. The up to date figures published in proposed scheme of arrangement (page 19 para 12.3) show that administrators professional independent valuation for loan book at £38m, considerable worse than
    before. £225m is a great start and I personally am very grateful to all concerned in reaching that point, however DETI has insisted that John Hansen KPMG be appointed to help in debt recovery. I do not wish to see people in difficulty destroyed by this but helped. The sad fact is that a significant minority have taken advantage. These accounts are very much part of the problem. This is shown in the fact that seven banks looked at a take over with four going the distance of due diligence,(scheme of arrangement page 12 para 3.5) the loan book was the main reason we did not have a commercial takeover. I consider this a real part of the problem. Sorry for too many contributions, this is the end.

  12. I am in broad agreement with PMS. How could anyone borrowing from the PMS not have imagined that a loan would have to be repaid? Regardless of the distinction between savers and investors, loans were loans and people should pay their debts.

  13. PMS Saver. It is not possible to charge someone with an offence that doesn’t exist; that’s the problem with a fatal regulatory gap. The consensus among PMS savers is that the Government’s £225,000,000 is the end of a crisis not a start. Wealthy / large savers, being a minority of savers, should content themselves with getting the majority of their savings back this summer and the vast majority at some date in the future. The PMS was not, and is not the only financial institution with customers who struggle to pay their debts, yet it was one of very few that failed. There were unique problems with the PMS that caused it to fail and these did not include bad debt. I’m glad a bank didn’t take over the PMS. Don’t you realise that the best possible outcome has been obtained for the PMS or is the glass always half empty for you?

  14. definitely the best outcome given how it was presented .. however .. I am very disappointed at how the words ‘equity’ and ‘mutuality’ have now disappeared. My response – my tithe will not be channeled through PCI.

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