Cantillon

Inside the world of business

Hedge fund managers seek comfort in numbers

“GROUP THERAPY for hedge funds” was how one investment manager with some of the €250 million of subordinated debt at Irish Nationwide described a conference call being held today by a London law firm for disgruntled bondholders.

This was about “self-preservation”, he said, as investors were unlikely to sue a Government over its legislative plans to force losses on them. The London-based manager said his firm’s investment was pocket change in the context of a €50 billion bank bailout, but it was a considerable sum for them.

Bondholders are reportedly banding together in an attempt to face down the Government’s plans to extract “a significant contribution” from subordinated debt investors to go towards the €5.4 billion bailout of Irish Nationwide. Lawyers Bingham McCutchen are hosting the conference call to discuss the situation and want to include senior bondholders.

The Government and the Irish public rightly argue that sub debt investors took a gamble by lending to a basket case like Irish Nationwide and should bear losses now that their bets have turned sour.

So how do the bondholders view it? Yes, Nationwide had “crappy” loans, the investor conceded, but the building society and its debts were “worth something to somebody” as it will have €4 billion of deposits and €2 billion of home loans post-Nama and had the cover of a Government guarantee.

“It seemed like a good bet,” he said, adding that bondholders now wondered whether Brian Lenihan was being vindictive, unpredictable and populist when he was previously viewed as level-headed by financial markets.

A saving of €250 million should not be sneered at – it equates to about half a percentage point increase in income tax rates. All this muscle-flexing by bondholders – cheer-led by sections of the British media who want Ireland to become a lab rat for testing senior bondholders – shouldn’t deter Lenihan from rolling up his sleeves and taking on this fight.

AIB pays price for slow start

THE DECISION of UK bank Standard Chartered – better known as sponsors of relegation-threatened Liverpool FC – to tap investors in a €3.75 billion cash call couldn’t come at a worse time for the Government.

The remainder of the year will be a busy period for equity markets as the soon-to-be-State-controlled Allied Irish Banks competes for investor cash with rights issues at Standard Chartered and other major European banks.

AIB will launch a rights issue next month to meet a shortfall of €5.4 billion to fill the remainder of the €10.4 billion capital hole identified by the Financial Regulator.While the bank is opening up the rights issue to existing shareholders and new institutional investors, most of the fresh capital will come from the taxpayer given the scale of the capital to be raised.

Crucially, there’s a big difference in motivation between AIB’s right issue and other banks’. While AIB is raising cash to bring its capital ratios up to the minimum expected by the market, the other institutions are seeking to raise capital in an early response to meet new rules on the level of capital banks must hold.

Once again Irish banks are playing catch-up on international developments. If AIB had realised the extent of its problems far sooner and approached the capital markets earlier, then it could be in a considerably better position.

But this is largely the story of the Irish banks – deny and resist. It is little surprise then that the Government is now seeking “progressive” board and management change at AIB. Unfortunately, as the taxpayer faces the imminent and effective nationalisation of a fourth Irish financial institution, this has come two years too late.

Website’s one-sided story

IF YOU’RE not one of the 1,100-plus Twitter followers of MerrionStreet.ie, or one of the 493 people who “like” the Government’s snazzy new multimedia information service on Facebook, then by definition you may have missed out on the existence of this new attempt by the political classes to embrace social media.

But the website came under scrutiny in Merrion Street proper on Tuesday, when Labour leader Eamon Gilmore asked the Taoiseach about its total cost and intended purpose. The answer to the first part of the question was almost €40,000.

While Fine Gael leader Enda Kenny fretted about what he felt was an inappropriate lack of tendering for the site, the discussion was noteworthy principally for Gilmore’s assertion that MerrionStreet.ie was “a propaganda site”, rather than an information one.

The Taoiseach was unhappy with Gilmore’s inability to offer an example to back up his charge. Ironically, one was soon provided by MerrionStreet.ie’s treatment of the debate on its own merits. Under an “issues” column on the site – not added to its social media feeds – it noted how “Taoiseach Brian Cowen has spoken in the Dáil regarding the cost of setting up MerrionStreet.ie” – a factual but far from complete synopsis of the discussion and the Opposition needling that sparked it. “You can always review the business of the Dáil and Seanad by going to the Oireachtas website,” MerrionStreet.ie offered. “You can see the full exchange there.” Thanks. Meanwhile, here was “an excerpt from the Taoiseach” – the defence, in other words, without the prosecution.

TODAY

The Central Statistics Office will issue inflation figures for September, while the Joint Committee on Finance and the Public Service will discuss pensions.

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