B of I withdraws UK bond swap offer

 

BANK OF Ireland has withdrawn a proposal to force heavy losses on a group of investors in one of the bank’s subordinated bonds ahead of the start of a legal action by a British pensioner in London today.

The bank cited administrative difficulties for the decision to terminate the offer on the £75 million (€84 million) bond sold by Bristol and West Building Society which Bank of Ireland acquired in 1997.

Just 12 per cent of the investors had accepted the bank’s offer by June 24th compared with a 74 per cent take-up on other bonds.

The bank has raised almost half the €4.2 billion in cash required to meet the Central Bank’s new capital target by the end of July from subordinated bondholders.

The terminated offer relates to a bond that represents just over 3 per cent of the bondholders on which losses are being imposed.

Albert Kempster, a 73-year-old former farmer from Glasgow, had taken legal action to stop the bank wiping out his savings over the so-called burden-sharing proposal.

He had planned to argue in a London court that the bank’s offer was “unfair” to retail investors.

His action was viewed as a test case for about 3,000 investors, many of whom were pensioners and have held the permanent interest-bearing shares since they were issued by Bristol and West in 1991.

The bank said the action had been withdrawn and “resolved to the parties’ mutual satisfaction”.

The investors may still face losses as the bank said it would address the “unique difficulties” in the terminated offer by making a new offer at a later date.

The withdrawal of the offer doesn’t affect the Government’s ability to inflict losses on investors using the Credit Institutions (Stabilisation) Act, the bank said.

Bank of Ireland offered 40 per cent of the face value of the debt if investors accepted new shares in the bank or 20 per cent for cash.

Mr Kempster was among those who would be forced to write off 80 per cent of their investment as they held on average less than £1,000 of the shares, which paid them interest of 13.375 per cent.

The investors required a minimum holding of £120,000 to qualify for the higher shares offer.

Mr Kempster bought £24,000 worth of shares in 2009.

The bank said that some of the investors “continued to encounter procedural difficulties” in participating in the bank’s June 8th offer.

Investors had to possess the share certificates to participate.

The Government is seeking to shave about €5 billion off the latest €24 billion bank recapitalisation bill by imposing losses on subordinated bondholders.

Bank of Ireland, which is 36 per cent State owned, is seeking to raise the remaining €2.2 billion from a rights issue next month.

The high take-up among bondholders so far has reduced the maximum stake the Government could take in the bank to 69 per cent, which means it will retain its listing on the main stock markets.