Bank of Ireland 13.375% Subordinated Bonds Campaign

INTRODUCTION:

GREAT NEWS - 2 Dec 2011 It is absolutely marvellous news that the hall of smoke and mirrors has finally been brought down and the true position that the Bank has met its capital requirement and there is no basis for a Subordinated Liabilities Order (SLO) in respect of the Bank of Ireland former Bristol & West PIBS (as this campaign has been pointing out for many weeks) has finally been admitted by the Bank of Ireland and Irish Finance Minister. One wonders how long they have had agreement to repurchase the subordinated bonds included in the announcement?

Well done everyone. The fact that there were 200 submissions (which by my reckoning includes about 190 on my campaign list !) will have made a significant impact. We had to make it clear to them that the negative implications of proceeding with an SLO were much greater than the value of the capital which would be generated. It has been one monumental effort by everyone and we have won every battle along the way over the past 6 months as a result. Outside of the campaign huge credit must go to Mark Leftly at the Independent for his incredible support and Vince Cable MP for finding the time to write many letters of support on behalf of his constituents and making a submission to the Irish Finance Minister.

Moving forward the Credit Institutions (Stabilisation) Act 2010, under which SLOs are granted, is set to be repealed within the next 12 months. However, I strongly feel that holders of the former PIBS should be put back in the position they were in before the botched transfer with UK regulatory protection and an undisputed remedy under English law so once I have caught up with some sleep I will continue to campaign to push for this.

Announcement of SLO climbdown at: tinyurl.com/SLOclimbdown

23 Nov 2011 - The Irish Finance Minister has announced that he is considering applying for an order to write down the savings of thousands of UK pensioners invested in Bristol & West PIBS, which were taken over by the Bank of Ireland in 2007, by 100%. He is proposing to do this in the first week of December unless stopped. 

You can read my submission on behalf of holders at Bank of Ireland SLO Submission

Please help by signing the e-petition (link below) and circulating it to all your contacts.

Consider whether the Bank of Ireland is fit and proper to hold a UK banking licence and operate the UK Post Office savings business

Responsible department: Her Majesty's Treasury

The Irish Finance Ministry announced that it is considering using legislation to write down the savings of thousands of UK citizens invested in PIBS of Bristol & West Building Society, which was taken over by the Bank of Ireland in 1997, by up to 100%. The Irish Finance Minister has recently stated that the Bank is, if anything, over-capitalised and amongst the strongest capitalised banks in the world. There is no justification for the proposed confiscation of savings invested in the former Bristol & West PIBS. These investments should only be at risk once the ordinary and preference shareholders have been written down. In the case of the Bank of Ireland neither has happened. The UK government should consider whether the Bank of Ireland, being subject to such actions by the Irish government, is fit and proper to hold a UK banking licence or to conduct the savings business of such a trusted brand as the UK Post Office.


PRESS RELEASE - 25 Nov 2011

Mary and thousands of other UK savers and pensioners set to get crucified by the Irish government this Christmas to protect US billionaire investors

Mary always does her shopping for gifts for friends and family well before Christmas however this year her festive season has become a nightmare fraught with uncertainty, unfairness and a distinctive whiff of dodgy deals in smoke filled rooms of privilege and excess.   

On Nov 23rd Michael Noonan, the Irish Finance Minister, announced giving just 7 days notice that he is seriously considering using recently passed complex legislation which he created to raise a small amount of capital for the Bank of Ireland. Noonan is proposing to confiscate over £40m of savings of thousands of UK citizens, mostly pensioners, who invested in Bristol and West Building Society PIBS, absorbing up to 100% of value rather than have bank shareholders, including wealthy US billionaires who recently acquired 35% of the bank, contribute the capital which is the normal legal practice.

Furthermore Noonan has recently publicly boasted that, if anything, the Bank is now over-capitalised and is amongst the strongest in the world so this has come completely out of the blue. This raises the question as to why he really wants to wreck Mary’s and thousand other savers lives this Christmas and what deal did he and Bank of Ireland have to do to lure rich US bank investors such as Wilbur Ross to put money into Bank of Ireland around 6 months ago?

Bank of Ireland, despite a number of requests from some PIBS savers, have strangely refused to clarify their latest capital position publicly leading to various conspiracy theories on what’s really going on behind the scenes. Sadly most PIBS savers don’t even now what’s happening or going on and are set to get a nasty shock when their bonds are terminated on or before Dec 31st the final deadline for action by the Irish government.

This Xmas horror story sadly goes on and on – the UK government, in fact, have already contributed £ billions to the Irish government to bail out Ireland’s once sickly banks out as part of a special relationship between the countries earlier this year and now our savers and pensioners get turned over & they don’t seem to care either.

What’s also really scary is The Bank of Ireland enjoys the benefit of the contract to run the savings business of the UK Post Office for millions of our savers and is dependent on the Irish government support. Can any of us now trust these institutions given how unfairly they are treating these PIBS savers?

While Noonan & Ross will undoubtedly enjoy this Christmas and toast in the New Year with champagne & caviar and possibly even a Cohiba cigar, it will be very different for Mary as well as many other savers this year in the real world which now feels very cold and uncaring:

 ‘I am a pensioner. The income from these bonds is essential to my welfare and that of my husband (who is also a pensioner). The withdrawal of this income will adversely affect the whole quality of our lives, including spending cold winters, and possibly having to downsize our living accommodation. The income that I currently get from my £10,000 worth of PIBS may be small beer compared with what the large institutions receive, but for us it means a reasonable standard of living rather than one of poverty. Not only will I lose income, but the capital value of my PIBS will also be virtually worthless. I do not have the opportunity to recover the losses at this time of life’

Unfair, unjust, unreal are words that can be used however it’s happening in a country we consider close to us & who would have thought Ireland had the potential to become another banana republic?  


On 31 May 2011 Bank of Ireland announced outline plans for a liability management exercise (LME) in respect of its subordinated bonds as follows:
 
The Bank intends shortly to launch a liability management exercise in respect of approximately €2.6 billion of its subordinated liabilities. The terms of the liability management exercise will reflect the Minister for Finance’s objective of ensuring subordinated bonholders contribute a significant element of the Bank’s Core Tier 1 capital requirement of €4.2 billion.  The Bank’s current expectation is that the cash prices under the exercise will be 10 per cent of nominal for Tier 1 securities and 20 per cent of nominal for Tier 2 securities, with no payment in respect of accrued interest. The liability management exercise will incorporate proposals to amend the terms of the relevant subordinated liabilities to gant a call option, allowing the Bank to acquire the securities for a cash amount which would be materially less than the cash tender terms listed above.  The Bank may also offer an equity alternative to subordinated bondholders incorporating both a premium to the cash alternative and a payment in respect of interest accrued. 

To the extent that subordinated liabilities are not acquired or exchanged pursuant to the proposed liability management exercise or acquired pursuant to the exercise of the call options under the amended terms of the eligible subordinated liabilities, the Bank understands that the Government will take whatever steps it considers necessary to maximise burden sharing.  

Securities such as Bank of Ireland 13.375% subordinated bonds are largely held by retail investors so it is very important that they are considered and that their voice is heard. The following is a brief summary of the issues now that we know that the 13.375% Bonds have been included in this vindictive offer:

The bonds were originally issued by Bristol & West Building Society as income shares to people in the UK (many pensioners who rely on the bonds for income) back in the 1990's. About 95% are still held by individuals - many still have their original certificates. After the Bank of Ireland bought Bristol & West they used a devious mechansim to transfer the bonds to the Bank of Ireland without obtaining the consent of holders or providing a guarantee from Bristol & West.
 
They have been offered a paltry 20p for every £1 of their savings and their unpaid interest will not be paid whereas larger holders of Bank of Ireland bonds are being offered 40p in shares plus unpaid interest in cash. The bank has arbitrarily decided not to make this better offer available to all but the largest holders.
 
And even to get this offer holders have to be accept by 22 June which, for many, will be impossible. If they are on holdiay, ill, incapacitated or do not understand the complicated forms (as will be the vase for many of the elderly holders) they have no chance. The Bank admit that the first many will realise anything is amiss will be when they do not receive their interest payment in November ! If they are not able to accept the Bank have said they will seek to redeem the bonds at 1p for every £1,000 held by using a devious voting mechanism which is almost certainly illegal under English Law.
 
This £75 million issue held by thousands of UK pensioners is unique amongst the Euro 2.6 billion of bonds subject to this offer and should ahve been excluded due to its special nature. And if it really did have to be included then the same 40p plus interest payment offered to larger holders should have been made available. Amazingly a large investment in Bank of Ireland preference shares, which are supposed to rank below the bonds, by the Irish state pension fund has been left untouched. Yet they are happy to wipe out 80% of the saving of UK pensioners even though the UK has recently provided Ireland with £6 billion to help with its financial problems.
 
I have had a 72 year old man with cancer who cannot afford to retire on the phone in tears. He has his lifes savings invested in these bonds. If this is the way the BAnk of Ireland treat individual and pensioners then people need to ask themselves if they should trust their savings with the Bank of Ireland and the banking services it provides to the Post Office in the UK.

As a result of this campaign the Bank of Ireland announced on 28 June that is was terminating the offer and that it would make a further offer in due course which addressed the unique difficulties presented to holders of the first offer. This new offer was announced on 24 August 2011. It gives rise to serious issues for holders of the former Bristol & West PIBS which are summarised in the following letter which has been sent to the Bank. 

COMPLAINT AGAINST THE FSA ON BEHALF OF BONDHOLDERS

Following resolution of the threats of a coercive LME and a Subordinated Liabilities Order I made a formal complaint against the Financial Services Authority in respect of its repeated failures to consider or safeguard the interests of holders of the Bank of Ireland former Bristol & West PIBS. Links to the two substantial letters of complaint I submitted are available at:

Complaint letter to FSA - 14 Dec 2011

Supplementary Complaint Letter to FSA - 23 Jan 2012

Following much delay and many months of 'investigation' the FSA replied to say that they did not uphold the complaint. I therefore appealed by referring the complaint to the Independent Complaints Commissioner who is currently investigating. My letter is available at:

Complaint letter to the Independent Complaints Commissioner - 3 Aug 2012

I have also set-up a Government E-petition on the regulation of retail bonds: Please sign my Government e-petition for a review of the inadequate FSA regulation of retail bonds and preference shares.

PARLIAMENTARY MOTIONS:

Parliamentary Motion: 15 June 2011

http://www.parliament.uk/edm/2010-12/1935

That this House notes the offer of 20 pence in cash being made to small stakeholders by the Bank of Ireland for their erstwhile Bristol and West permanent interest-bearing share bonds; finds it unusual that the Irish Government's equity stake is being protected whilst smaller bondholders, some of whom paid over £2 each per bond, are expected to sell their bonds at a greater discount; finds it unfair that the smaller holders, who comprise over 97 per cent. of the register, are prevented from participating in the debt for equity offer at 40 pence; further notes that the scheduled meeting venue is too small to allow any reasonable number of bondholders to attend; and calls on the Bank of Ireland to withdraw the offer and reissue an offer which allows retail holders to fully participate and which has a meeting venue which is large enough for them to attend.

Parliamentary Motion: 6 September 2011

BRISTOL AND WEST BANK AND THE IRISH GOVERNMENT

That this House notes the recent offer of the Bank of Ireland to purchase the erstwhile Bristol and West Permanent Interest Bearing Shares; thanks the Bank for recognising the retail nature of this security and making an offer which is optional; further notes with concern that the Bank is indicating that the Irish Government may apply for an order in the Courts in the Republic of Ireland to change the contractual terms of the bonds in a manner which would be detrimental to the thousands of UK citizens who hold this bond which is now issued by a UK branch of the Bank of Ireland and overwhelmingly held by UK citizens; and requests the Irish Government to consult with the bond holders before taking such an unprecedented step given that over 80 per cent. of the Bank of Ireland's equity is held privately.

http://www.parliament.uk/edm/2010-12/2134

OPEN LETTER TO HM TREASURY, FSA & DEPARTMENT OF BUSINESS - 12 OCT 2011

12 October 2011

OPEN LETTER TO HM TREASURY, THE FINANCIAL SERVICES AUTHORITY AND THE DEPARTMENT FOR BUSINESS, SKILLS & INNOVATION

Dear Mr Osborne, Mr Hoban, Dr Cable & Mr Sants

I am writing, as a volunteer, on behalf of several thousand UK pensioners who invested their savings in Permanent Interest Bearing Shares of Bristol & West Building Society ("B&W PIBS") in the early 1990's who are being threatened with confiscation of their investments using Irish legislation. Over 500 holders have contacted me in great distress about the situation. You should be aware of the background from copies of my own letters which have been sent to you and from the attempts of hundreds of MP's to assist on the matter.

There is now considerable urgency to find a solution. The Bank of Ireland ("the Bank") have been given until 31 December to meet its capital requirement. The Bank, the Central Bank of Ireland and the Irish Finance Ministry are all refusing the answer questions concerning how much capital the Bank still has to raise, what step it is taking to raise it and what steps it is allowed to take. Furthermore they are refusing to talk to other bondholders with credible plans for the raising of any capital required. It therefore appears that they are seeking to rely upon a subordinated liabilities order ("SLO") being obtained to enforce losses on holders of the B&W PIBS to raise further capital despite the fact that the Bank is already one of the highest capitalised in Europe and has other means of raising capital available to it.

I am writing to request that the UK Authorities act without delay to prevent this from happening. The B&W PIBS were transferred from Bristol & West to the Bank of Ireland in 2007. The Transfer has exposed  fundamental failings in the regulations which are supposed to protect investors and the FSA and Treasury must accept responsibility for this. It is clear that while the FSAM 2000 and associated Regulations are intended to protect the rights of those affected by proposed Transfers they fail to address the issue of the transfer of a UK bank retail bond held by thousands of small, unsophisticated UK individuals to an overseas bank. The Treasury's 2001 Consultation Document on the Regulations stated:

4.   So far as the purpose of the regulations is concerned, section 110 of the FSMA makes clear that when the court comes to consider an application for a transfer, any person who alleges that he would be adversely affected by the scheme is entitled to be heard by the court.  In order that this provision may be properly effective, it is clearly necessary that the existence of the proposal should be known, and the details of the scheme available, to any such persons.  In addition, section 109 of the FSMA, provides that, for insurance transfers only, a report on the terms of the scheme must be prepared by a qualified person.  It is desirable that this report should also be available to interested parties, before the court comes to consider the scheme, as it might have a bearing on their decision whether or not to make representations to the court.  These regulations are therefore intended to make sure the relevant information is accessible to anyone who may have an interest in a particular transfer.

http://archive.treasury.gov.uk/fsma/business_transfers/intro.html

In the case of the Transfer of the B&W PIBS from Bristol & West plc to the Bank of Ireland it was effectively an intergroup transfer, the acquisition of the Bristol & West Building Society by Bank of Ireland having taken place 10 years earlier, and so received little or no press coverage to bring it to the attention of holders. However, as explained below, it involved substantial and material modifications to the rights of the thousands of UK individuals known to be holding the B&W PIBS. In these circumstances it is clear that the publishing of a notice in the London, Edinburgh and Belfast Gazettes; and in two national newspapers in the United Kingdom was not sufficient to ensure that the existence of the proposal was known to holders of the B&W PIBS. It is of note that on 11 September 2007 (just 6 days before the High Court hearing at which the Transfer was approved) a notice of the Transfer hearing was posted to holders of the B&W PIBS. This was insufficient notice for unsophisticated retail investors to obtain details of the transfer, obtain advice on how it affected them and make arrangements to make representations at the hearing. However, the fact that the notice was sent indicates that it was realised that the proposed modifications were materially prejudicial to the interests of holders of the B&W PIBS.

Furthermore, not only were holders of the B&W PIBS not aware of the proposal but, also, the Scheme document (available at https://docs.google.com/viewer?a=v&pid=explorer&chrome=true&srcid=0B8hzbUJuMAkqOWRmN2E0N2UtOTkxYS00ZjkxLWIxZjAtMjM2NTA0M2EzZTY4&hl=en_GB) failed to disclose to the Court neither the nature of the holders of the B&W PIBS nor the following materially prejudicial modifications which were proposed. In approving the Transfer the judge would have been unaware of the following materially prejudicial modifications or the nature of the holders of the B&W PIBS:

1. Change of regulator from UK to Ireland

The involved transfer of retail bond known to be uniquely held by thousands of small, unsophisticated UK investors most of whom are pensioners from a UK issuer with UK regulatory protection to an Irish issuer, regulated by the Irish Financial Regulator. Not only was it clearly inappropriate to remove home country regulatory protection from the thousands of small, unsophisticated UK holders but also Ireland and its banks were known as the 'Wild West of European finance.' The Irish Financial Regulator was widely known as ineffective, with lax regulation and without basic retail investor protection such as an independent complaints procedure or being subject to freedom of information scrutiny.

2. Change of Law for only remedy available to holders and trustee under the Trust Deed

The only remedy available to the Trustee and holders of the B&W PIBS, being obtaining a winding up of the issuer, was being moved from against a UK entity under English Law to an Irish entity under Irish Law. This change struck at the heart of the Trust Deed and rights of the holders of the B&W PIBS, who were known to be thousands of unsophisticated UK citizens, and was clearly materially prejudicial to their interests.

3. No Guarantee from Bristol & West was being provided

The Trust Deed provides that, on substitution of the issuer, Bristol & West will provide a guarantee. This was not done and was not referred to in the Scheme document seen by the Court.

In summary holders of the B&W PIBS were not made aware of what was being proposed under the Transfer or how it would affect them and the Court, which approved the Transfer, was not made aware of the nature of the holders or the material changes which the Transfer would make to their position. In these circumstances holders of the B&W PIBS were effectively deprived of their rights to make representations or to have their position considered and, as a direct result, are now threatened with confiscation of their investments using Irish legislation and are not afforded any regulatory protection or remedy under English Law.

The most practical and appropriate solution is to put holders of the B&W PIBS in the position they would be in if their investments had not been transferred to Ireland by transfer of the B&W PIBS to a UK subsidiary of the Bank of Ireland such as Bank of Ireland (UK) plc to which the UK Authorities insisted the UK Post Office business of Bank of Ireland was transferred last year. It should be noted that prior to the 2007 Transfer Bristol & West plc was party to a number of joint venture agreements with the UK Post Office and that these were transferred to the Bank of Ireland as part of that Transfer. It is presumed that these agreements were subsequently transferred to Bank of Ireland (UK) plc and so it is appropriate that the B&W PIBS should be likewise transferred.

It should be noted that if the Irish Finance Minister does seek and obtain a SLO in respect of the B&W PIBS then the Credit Institutions (Stabilisation) Act 2010, under which it would be obtained, does not contain provision for small, unsophisticated, overseas retail holders to receive sufficient notice in order to be able to put together any form of appeal. It is therefore essential that the UK Authorities act without further delay to use the undoubted influence they have to ensure that the B&W PIBS are transferred back to a UK entity with UK regulatory protection and subject to UK law. I look forward to hearing from you as a matter of urgency.

Yours sincerely

Mark Taber
mark@fixedincomeinvestments.org.uk

CORRESPONDENCE WITH CENTRAL BANK OF IRELAND

Email to Bank of Ireland - 29 Sept 2011:

29 September 2011

Dear Mr Honohan

I refer to my letter of 15 September 2011 on behalf of UK holders of Bank of Ireland former Bristol & West PIBS to which I have not received a response. Both the Financial Services Authority and HM Treasury have informed that it is the Central Bank of Ireland which is responsible for regulating the Bank of Ireland and that holders should raise issues with it. The current situation and threats being made are, as acknowledged by the FSA, causing considerable distress to a very large number of UK pensioners who invested their savings in Bristol & West PIBS and rely on them for irreplaceable pension income. Please can you provide a substantive response. I would also add the following the issues already raised:

In the Offer document of 24 August the Bank of Ireland made the following statement:

"On 8 July 2011, the Central Bank of Ireland informed the Bank that, given the timeline required to complete the liability management exercises for certain bonds (including the Bonds) and the likely requirement for a "subordinated liabilities order" (as described under "Background to the Offer" below), the Central Bank of Ireland was extending its 31 July 2011 deadline for raising the additional capital required to 31 December 2011. The Central Bank of Ireland specified that this extension of deadline referred solely to the €0.51 billion capital expected to be generated by completion of the above liability management exercises."

The statement refers to a notice received from the Central Bank on 8 July 2011 of which I can find no public record. Please can you provide a copy of this notice and, in respect of it, answer the following questions:

1. Did the notice refer to a 'likely requirement for a subordinated liabilities order'?

2. Did the notice state that the Central Bank expects the €0.51 billion of capital to be generated by completion of liability management exercises?

3. Does the Central Bank consider that the figure of €0.51 billion was correct as at 24 August? The Bank's Interim Report of 10 August gives a figure of €0.4 billion.

4. If the Bank of Ireland has insufficient capital to the extent that the Central Bank considers there is a 'likely requirement for a subordinated liabilities order' why did the Central Bank allow the Bank the pay the discretionary coupon on its outstanding Tier 1 notes on 7 September when this coupon could contractually have been deferred so generating Core Tier 1 capital for the Bank and reducing the amount outstanding?

5. Has the Central Bank given the Bank of Ireland until 31 December to raise any capital still required before any consideration will be given as to whether a subordinated liabilities order in respect of the former Bristol & West PIBS is necessary to preserve or restore the financial position of the Bank?

6. How can the Central Bank consider there to be a 'likely requirement for a subordinated liabilities order' when the Bank of Ireland is one of the highest capitalised bank's in Europe, has already raised sufficient capital to meet the 2011 PCAR tests, has easily passed the European capital tests and the Irish Finance Minister was reported as follows last Sunday:

Ireland's Noonan: If Anything, Irish Banks May Be Overcapitalized

WASHINGTON (Dow Jones)--Ireland's banks are, if anything, overcapitalized the country's finance minister, Michael Noonan, said on Sunday.

Speaking at the Institute of International Finance in Washington, Noonan said he was pleased that Ireland's state-owned banks had coped well with the strains in financial markets over the summer with deposits continuing to flow in.

He said that far from needing further capital, "if anything, they are overcapitalized."

http://online.wsj.com/article/BT-CO-20110925-703553.html

Just last Saturday the Irish Times reported:

MINISTER FOR Finance Michael Noonan is considering whether to inflict losses on the subordinated bondholders who shunned Bank of Ireland’s cash offer on sterling bonds with a face value of £75 million (€86 million).

http://www.irishtimes.com/newspaper/finance/2011/0924/1224304677122.html

These continued unnecessary threats and lack of accurate and complete information are perpetuating the unnecessary distress being caused to thousands of UK pensioners. I therefore call on the Central Bank, as the responsible regulator, to provide answers without further delay.

I look forward to hearing from you.

Yours sincerely

Mark Taber
Tel:  01761 220027
Email: mark@fixedincomeinvestments.org.uk

Response from Central Bank of Ireland - 6 Oct 2011

Dear Mr. Taber
 
I refer to your emails of 15, 29 September and 6 October to Mr. Patrick Honohan regarding Bank of Ireland former Bristol & West PIBS.   I regret the delay in replying. 
 
As a licensed credit institution, Bank of Ireland is subject to on-going capital requirements.   In this regard, the Central Bank of Ireland (Central Bank) has engaged with the institution with a view to establishing its capital requirements over the next number of years.   As a result, Bank of Ireland must improve its capital position to meet these requirements, which will help to restore public and investor confidence in the bank.  The process through which Bank of Ireland raises this capital is a decision for the bank itself and only involves the Central Bank to the extent that it must be satisfied that the end result meets the capital requirements set out by the Central Bank.   Therefore, it is not the Central Bank’s role to involve itself in the process being pursued by Bank of Ireland; rather its role is to ensure that Bank of Ireland is in a position to meet its capital and other regulatory requirements, thus providing the marketplace with confidence in the bank.
 
As set out in the Financial Measures Programme, Bank of Ireland was required to generate €4.2bn in equity capital and €1bn by way of a Contingent Capital Instrument by 31 July 2011.  Bank of Ireland’s plan to raise the required capital included a Liability Management Exercise (“LME”).   Due to a number of factors the LME would not have been fully completed by the 31 July deadline.  The Central Bank of Ireland granted Bank of Ireland an extension to 31 December 2011 in respect of €0.51bn equity capital to be generated by Remaining LME Offers and further burden sharing.   
 
This was disclosed by Bank of Ireland as part of the prospectus for the Rights Issue on 11 July 2011 and at the Extraordinary General Court of 11 July 2011.  Details of the additional capital to be raised were also disclosed in Bank of Ireland’s Interim Report for the 6 month period ended 30 June 2011.   
 
Yours sincerely
 
 
Elaine Mannix
Public Contacts Unit
Central Bank of Ireland

Letter to Central Bank - 12 October 2011

Dear Mr Honohan & Mr Elderfield

I refer to my previous emails and the questions asked to which I have still not received answers.

I would remind you that the Central Bank of Ireland is the Irish financial regulator and, as such, was heavily involved in the Scheme of Arrangement for the Transfer of the former Bristol & West PIBS from the UK to Ireland in 2007. The Explanatory Statement sent to holders about the Transfer stated:

In addition to seeking Court approval of the Transfer, Bristol & West and the Bank of Ireland have been working closely with the regulators, the FSA and the Irish Regulator, to help ensure that their customers are not adversely affected by the Transfer.

The Central Bank of Ireland accepted responsibility for regulating the issuer of the former B&W PIBS, which were known to be held by thousands of small, unsophisticated UK investors, and should honour its commitment to ensure that they are not adversely affected by the Transfer. This should include ensuring that they are not adversely affected by the change of regulator, country of issuer and law of remedy applying to their investments. To date the Central Bank has completely failed in this regard. For example, despite not having been included in the Bank's previous liability management exercises, the former B&W PIBS were inappropriately and illegally included in the recent coercive LME with a timetable that was far too short for retail holders and with an illegal amendment resolution to attempt to confiscate bonds not tendered for 1p per £1,000. The Central Bank should never have allowed this and it would not have been allowed in the UK by the FSA. It was only through the superhuman efforts of volunteers that the Bank was forced to terminate that offer and the Central Bank has failed to make any statement of apology or commitment to rectify the situation which, as acknowledged by the FSA, has caused and continues to cause considerable distress for thousands of UK pensioners who rely on these bonds for income.

And now, despite the Bank of Ireland being one of the highest capitalised banks in Europe and, in the words of the Finance Minister, being, if anything, overcapitalised the Central Bank still refuses to take any action in respect of the incomplete, inaccurate and inappropriate contents of the revised Offer document in respect of the Bank's capital position.

As acknowledged in your email of 6 October it is the Central Bank which must decide whether the Bank has sufficient capital. It is therefore extremely worrying that the only figure of outstanding capital referred to in your email was €0.51 billion as this is clearly incorrect. The figure referred to in the Bank's 11 August Interim Report was €0.4 billion. An analysis using subsequent events is as follows:

Core Tier 1 generated by LME in July / August 2011 €1,930M (source Page 21 of the Interim Report)
Core Tier 1 generated by exercise of sub-debt call options €100M (source Page 21 of the Interim Report)
Proceeds from Rights Issue (August 2011) €1,908M (source Page 8 of the Interim Report)
Gain on late settlement Canadian $ Notes LME (August 2011) €30M (source RNS 1565M18 announcement 10 August 2011)
Interest saved on €2 billion of subordinated debt €68M (see Note 1)
Gain on Tender Offer on 13.375% PSBs €45M (see Note 2)

SUB TOTAL €4,081M

OTHER ITEMS:

Excess PCAR allowance for Impairment of financial assets €413M (see Note 3)
Potential gain on recent investments in Irish Sovereign Debt €300M + (see Note 4)

Note 1:  From Page 21 of the Interim Report €1.8 billion of subordinated liabilities were exchanged for ordinary stock, €0.1 Bn were exchanged for cash and €0.1 billion were extinguished as a result of the exercise of call options. A further €0.03 billion were exchanged from the late settlement Can $ Notes (source RNS 1565M18 announcement 10 August 2011). This reduces the level of subordinated liabilities on which the Bank pays interest in the second half of 2011 by €2.03 billion. In the first half of 2011 interest of €88 million (source Note 3 of the Interim Report) was expensed on €2,633 million (source Note 29 of the Interim Report) of subordinated liabilities. This implies an annualised average rate of 6.7% and a capital accretive saving of €68 million on the €2.03 billion of subordinated liabilities extinguished as a result of the LME.

Note 2: Book value of £75 million nominal outstanding as at 31 Dec 2010 was €144 million. 39% (£29 million) Tender Offer acceptance rate means bonds with book value of €56 million were repurchased at 35% (cost of £29 million x 35% x 1.15 = €11.7 million) so giving a gain of €45 million.

Note 3: The PCAR which arrived at the €4.2 billion capital requirement made allowance for Impairment of financial assets of €2,215 million in 2011 (source FMP, Page 31, Table 11). In the first half of 2011 the actual level of impairments charged to the income statement was €901 million (source Interim Report, Page 10). Assuming no deterioration in the second half (a reasonable assumption given the improving economic situation in Ireland) the actual level of asset impairments for 2011 will be approximately €1,802 million. The PCAR allowance for 2011 is therefore approximately €413 million higher than the actual level and so the capital requirement should be adjusted to reflect this known variance.

Note 4: It has been reported by market sources and in the press that the Bank has invested a significant sum of the capital raised to date from the 2011 PCAR in Irish Government bonds. Since investment the prices of these bonds have increased significantly and the gains arising on their sale would easily cover any outstanding capital requirement. Furthermore, in the current crisis it appears grossly irresponsible for a Bank, which you regulate, to be investing Core Tier 1 regulatory capital raised in sub-Prime peripheral Sovereign debt. The Central Bank should, therefore, insist that this capital is invested in safer deposits and the resulting gain be taken towards the Bank'c capital target.

The sub-total, before Other Items, of €4.1 billion is only €0.25 billion short of the €4.35 billion (including expenses) target and this shortfall is easily covered by only a small proportion of the capital available to the Bank from the Other Items and other measures such as the equity exchange detailed below.

I have heard from two credible sources that the Bank also has internal means available to raise the outstanding capital. A formal offer was also made by US holders of outstanding subordinated debt to provide the capital via an equity exchange. I understand that the Bank and the Finance Ministry have refused to engage in any way to discuss this Offer which very much goes against the Minister's public statements that they will talk to all credible parties in respect of offer to provide capital. Furthermore the Finance Minister stated to the Senate, last week, that the State could have sold more of its equity holding in the Bank to private investors but elected not to. It is therefore clear that the €0.51 billion could have been raised from private equity issuance rather than increasing the contribution expected from subordinated bondholders from €2.1 billion in the original LME announcement to €2.6 billion in the Rights Issue announcement.

The Central Bank has a clear duty not to allow this situation and the distress it is causing to continue. The Bank clearly has sufficient capital available to it without any need for a subordinated liabilities order in respect of the former Bristol & West PIBS. I look forward to hearing from you.

Yours sincerely


Mark Taber
Tel: 01761 220027
mark@fixedincomeinvestments.org.uk

Response from Central Bank of Ireland - 13 Oct 2011

Dear Mr. Taber
 
I refer to your email of 12 October 2011 addressed to Mr. Honohan and Mr. Elderfield which has been passed to this Unit for reply.
I note your comments but  have nothing further to add to my email of 6 October 2011.
 
Yours sincerely 
 
Elaine Mannix
Public Contacts Unit

Letter to Central Bank of Ireland - 14 October 2011

14 October 2011

Dear Mr Honohan & Mr Elderfield

I refer to your email of 13 October. I would respectfully point out that, in its capacity as the Irish financial regulator, the Central Bank of Ireland is not in a position to take no action on these issues. It knowingly accepted transfer of responsibility for the regulation of the issuer of a UK listed retail bond held by thousands of UK pensioners and cannot duck this issue. The Central Bank must have been involved in and approved the Bank of Ireland liability management exercise commenced in June 2011 and have approved the inclusion of the former Bristol & West PIBS in the LME despite the protestations of the Trustee and myself. The inclusion of retail bonds in a coercive offer (illegal under English Law) which was not retail compliant, not open to all holders alike and had an acceptance deadline which was too short for a retail held bond was a complete disgrace and, as stated by the FSA has caused considerable distress. Not only has it caused distress but also substantial loss because a large number of holders sold their bonds in the market between the announcement of the LME and its termination in respect of the former B&W PIBS. This alone gives grounds for a substantial complaint against the Central Bank and yet it has failed to make any form of statement.

And now the Bank of Ireland has clearly raised substantially more capital than has been announced to the market and also has other capital raising measures available to it which would easily achieve its target by the 31 December deadline. I have provided you with details of this - as copied below. This is material price sensitive information in the context of the former B&W PIBS and the Bank has an ongoing responsibility to inform the market accordingly without further delay. As the responsible regulator the Central Bank should ensure that this is done in order that further loss and distress is not caused to holders of the former B&W PIBS.

If the Central Bank is not able or willing to remedy its mistakes and provide an appropriate level of protection to the thousands of UK pensioners who rely on the former B&W PIBS for pension income then it should authorise and instruct the Bank of Ireland to transfer the bonds to its UK subsidiary (Bank of Ireland (UK) Holding plc) so that holders have the same regulatory protection and legal remedies as they had before the bonds were transferred to Ireland in 2007 without their knowledge or consent.

While writing I would also ask you to advise what access retail investors have to a complaints procedure, independent scrutiny and freedom of information in respect of the performance by the Central Bank of its regulatory functions in respect of their investments. These are all available in the UK in respect of the FSA and should be available in Ireland as it was agreed, between Bristol & West, Bank of Ireland, the FSA and the Irish Financial Regulator, that the Transfer would not have an adverse impact on the position of holders.

I look forward to hearing from you as a matter of urgency.

Yours sincerely

Mark Taber
mark@fixedincomeinvestments.org.uk
Tel: 01761 220027

CORRESPONDENCE WITH THE IRISH DEPARTMENT OF FINANCE

Letter to Finance Ministry 15 Sept 2011:

Dear Mr Noonan & Mr Honohan

I am writing as a volunteer on behalf on thousands on UK individuals, the majority of whom are elderly pensioners with limited financial expertise or resources, who hold former Bristol & West Building Society PIBS which were reclassified as subordinated liabilities of the Bank of Ireland in 2007. These people invested their savings in a UK building society for pension income in the early 1990's and had no say in, proper notice of or facts about the transfer to the Bank of Ireland despite the fact that it inappropriately removed UK regulation from their investments, UK law from their sole remedy and failed to provide a guarantee from Bristol & West which they should have received under the terms of the Trust Deed. They did not invest their money in an Irish Bank and are not 'chancers or speculators' and so do not fall within your description of those on whom your policy of enforced burden sharing should be inflicted. Furthermore many are now in their eighties or nineties and are unaware of the actions you are threatening to take in respect of their investments and so would be innocent and unnecessary victims of any actions. You will be aware that the Bank of Ireland terminated its original coercive liability management exercise (LME) in respect of these former PIBS and settled a test applicant challenge on the legality of that LME. In so doing the Bank acknowledged:

the unique difficulties that have been highlighted to the Bank to date with regard to participation in the terminated Offers by the holders of the £75,000,000 13.375 per cent. Unsecured Perpetual Subordinated Bonds.

And in a telephone conversation in June of this year an employee of the Bank stated that:

the first time most holders will be aware of what has happened is when they do not receive their interest payment in November.

It is therefore clear that the vast majority of holders will not be aware of, let alone understand or have access to appropriate advice or assistance, the threats you are making to obtain a Subordinated Liabilities Order (SLO) under the Credit Institutions (Stabilisation) Act 2010 (CISA) in respect of their investments. It is also clear that the CISA was not intended as a mechanism to confiscate the savings of thousands of overseas individuals who would not have:

- knowledge of its workings
- the existence of a SLO in respect of their investments
- the capacity or means to be aware of or act to appeal an SLO in Ireland (a foreign jurisdiction) within the 5 day period stipulated in the Act

Furthermore, there do not appear to be grounds for the seeking or granting of a SLO in respect of the former B&W PIBS. Paragraph 28(1) of the CISA states: 

the Minister may make a proposed subordinated liabilities order in relation to the subordinated liabilities of a relevant institution to which the Minister has provided or intends to provide financial support under the Act of 2008 only if—

(a) the Minister has consulted with the Governor, and

(b) after so consulting, the Minister is of the opinion that the making of a subordinated liabilities order in the terms of the proposed subordinated liabilities order is necessary for preserving or restoring the financial position of the relevant institution with the consequence of affecting (including reducing) the rights of subordinated creditors existing before the order.

The €4.2 billion additional equity requirement set by the Central Irish Bank includes a €0.5 billion buffer and is based on assumptions which are stated to be extremely conservative. The Banks' latest interim results state that, as at 30 June 2011, the Bank had raised €3.8 billion of this requirement. It is, therefore, already within the buffer of the requirement. Furthermore, the Bank clearly does have means of raising any outstanding requirement without the need for a SLO. For example:

i. In the LME document the raising of the €4.35 billion (including expenses) of additional equity capital was outlined as being split between the LME and the Rights Issue as shown in the following table which is extracted from the original LME announcement:



In the original Offer document the minimum acceptable contribution from subordinated bondholders was stated to be €2.12 billion as would have been the case if all holders had elected for the cash option. The amount raised from the LME is at or around this level. The level of contribution if no holders had accepted the offers and a SLO was sought and obtained was envisaged to be €2.28 billion. In both cases it was stated that the balance of the requirement would be raised from the Rights Issue. However, in the new Offer document the minimum level of contribution required from subordinated bondholders appears to have been raised to €2.54 billion (the €2.03 billion stated to have been raised so far plus the €0.51 billion stated further requirement). This implies that the Bank is now seeking a near 100% contribution from its previous €2.6 billion of outstanding subordinated debt rather than the approximately 80% level disclosed in the original Offer. It is clear that the Bank did, and still does, have the ability to raise the outstanding capital by means of a Rights Issue and that an arbitrary change has been made to further penalise subordinated bondholders while holders of preference and ordinary shares are left whole. This change and the corresponding reduction in the Rights Issue element of the capital raising from what was stated in the original offer is an unreasonable and unrealistic variation especially in light of the fact that the State's level of contribution to the capital raising has been substantially reduced by the €1.05 billion of equity now being provided by institutions. 

ii. In response to enquiries about the current situation the Central Irish Bank has written stating that:

The process through which Bank of Ireland raises this capital is a decision for  the bank itself and only involves the Central Bank to the extent that it must be satisfied that the end result meets the capital requirements set out by the Central Bank.
 
If this statement is true then the Bank is in a position to proceed with formal offers from substantial holders of approximately €500 million of outstanding subordinated debt to convert their holdings into equity as evidenced in the Particulars submitted by these holders which is available at Particulars of claim.

iii. I believe that the Bank does have other equity capital raising measures available to it such as asset disposals which could be completed before the 31 December capital raising deadline and internal capital generation.

It is therefore the case that the Bank does have other means by which it could raise the outstanding capital before the 31 December deadline without the need for a SLO in respect of the former Bristol & West PIBS. It is clear that a SLO is not necessary to preserve or restore the financial position of the Bank.

I would also remind you that the Bank of Ireland derives approximately 30% of its business from the UK. A substantial proportion of this comes from the Bank's contract to provide banking services through the UK Post Office a service which is particularly popular with UK pensioners. It therefore appears grossly inappropriate and inadvisable for the Bank or the Finance Minister to be seeking or threatening to confiscate or materially alters the bonds of thousands of UK pensioners who invested their savings in a UK building society in the 1990's and have unwittingly, without proper notice or information and without consent had their investments reclassified as subordinated liabilities of a foreign bank.

Furthermore, on 22 July 2011 the Finance Minister made the following statement in respect of assistance provided by UK taxpayers to Ireland:

“I welcome today’s announcement by the Chancellor that the UK proposes to reduce the interest rates on the loans to Ireland to a level slightly below the new European Financial Stability Fund (EFSF) interest rate. 
 
The support of the UK reflects the important economic relationship between Ireland and the UK. The level of trade between Ireland and the UK supports jobs in companies of all sizes from sole traders through to the largest companies. The willingness of the UK to assist Ireland reflects how both countries gain through sustainable economic growth that creates long term jobs.
 
I wish to thank the Chancellor who has strongly argued the case for a European resolution to the crisis and the need for a reduction in the interest rates charged on the EU loans.  This is a point that I have often made and the support of the Chancellor was important in reaching yesterday’s agreement. 
 
At a personal level, I would also like to thank the Chancellor for the significant support that he offered me on this topic during meetings in Brussels.”

Does the Finance Minister consider it appropriate to unnecessarily confiscate or devalue the investments of thousands of these taxpayers for whose support he is so grateful?

You are the two people named in the CISA as those who must decide and consult upon whether an SLO is to be sought in respect of these former Bristol & West PIBS. I would appreciate you providing clarification of your position to holders of the former Bristol & West PIBS because, as acknowledged by Hector Sants of the Financial Services Authority, the drawn out situation with continued threats is causing a great deal of distress to thousands of elderly people in the UK who rely on these former PIBS for essential and irreplaceable income in the last years of their lives .

Yours sincerely


Mark Taber
Tel: 01761 220027

cc: George Osborne - Chancellor of the Exchequer
Hector Sants - Chief Executive Financial Services Authority
Mark Hoban - Financial Secretary to HM Treasury
Phil Jones - Treasury Select Committee
Vince Cable - Secretary of State for Business, Innovation and Skills and President of the Board of Trade
Edward Davey - Parliamentary Under-Secretary of State (Employment Relations, Consumer and Postal Affairs)

Letter to Finance Ministry 26 Sept 2011:

Dear Mr Noonan and Mr Cardiff

Thankyou for your letter of 23 September in response to my Open Letter of 15 September (3 OPEN LETTER TO THE IRISH FINANCE MINISTER & GOVERNOR OF THE CENTRAL IRISH BANK - 15 SEPT 2011).

I note that you have forwarded a copy to the Bank of Ireland. Please advise from whom and by when I should expect a response. I have been trying, without success, to obtain answers from the Bank of Ireland to reasonable questions on behalf of holders of the former PIBS for some time. I have also invited the Bank to speak to holders on six occasions without receiving a response.

While writing I would reiterate that the treatment of and threats made to holders of the former Bristol & West PIBS in causing great distress to a large number of elderly UK pensioners who rely on these investments for irreplaceable pension income. These thousands of UK pensioners, many now in their eighties and nineties, are not 'chancers or speculators' as the Finance Minister has stated holders of bank subordinated bonds to be. Instead they are vulnerable individuals who invested their hard-earned savings in a UK building society in the early 1990's for pension income on which they continue to rely. They had their investments moved away from the UK without their consent  or proper notice in 2007 and lost UK legal and regulatory protection in the process. The Bank failed to disclose the nature of the holders or materially prejudicial changes to their position which would arise from the transfer to the High Court which approved it and, as a result, a transfer which would, otherwise, not have been permitted took place. They were not invited to tender their bonds in previous, truly voluntary, liability management exercises at higher levels to the recent Offer. This was surely because the Bank realised the nature of the holders and it was not considered appropriate. But then against protestations of the Trustee and myself the Bank illegally included them in its recent coercive LME in a disgraceful attempt to confiscate the savings of those who it knew would not be capable of acting upon the Offer for 1p in £1,000. Under pressure the Bank was forced to terminate that Offer. The Bank then made a further offer which was described in the Offer Terms as follows:

The Offer is entirely voluntary, and Bondholders are under no obligation to participate.

But buried in the risk factors was an out of date statement made by the Finance Minister threatening severe measures against remaining bondholders. The Bank failed to provide any up to date statements or information about the current status of its capital raising or the measures it. As a result most of the unsophisticated elderly holders will be completely unaware of the threats made and many brokers failed to communicate them to holders in the summary of the offer they passed on.

Now, despite holders having been caused considerable distress for nearly 4 months and your assuring me that our concerns had been noted the Irish Times reported on Saturday (following conversations with the Finance Ministry) that:

MINISTER FOR Finance Michael Noonan is considering whether to inflict losses on the subordinated bondholders who shunned Bank of Ireland’s cash offer on sterling bonds with a face value of £75 million (€86 million).

This does not indicate any appreciation of the history of the former PIBS, the circumstances of holders or the considerable distress that the treatment of them and threats are causing. Furthermore, to any objective observer there is no moral, financial or legal justification for one of the highest capitalised Banks in Europe or the Finance Ministry to be seeking to confiscate the savings and irreplaceable pension income of thousands of elderly UK pensioners. The true position of the Bank of Ireland is indicated in the following comments of the Finance Minister this weekend.

Ireland's Noonan: If Anything, Irish Banks May Be Overcapitalized

WASHINGTON (Dow Jones)--Ireland's banks are, if anything, overcapitalized the country's finance minister, Michael Noonan, said on Sunday.

Speaking at the Institute of International Finance in Washington, Noonan said he was pleased that Ireland's state-owned banks had coped well with the strains in financial markets over the summer with deposits continuing to flow in.

He said that far from needing further capital, "if anything, they are overcapitalized."

http://online.wsj.com/article/BT-CO-20110925-703553.html

I am not just writing to you with a problem but also with a simple solution. Last year when the Bank of Ireland ran into problems with the FSA over the UK retail banking deposits it held through its UK Branch as a result of its contract to run the banking business of the UK Post Office the solution was to establish a separate UK subsidiary for holding these deposits. The former Bristol & West PIBS are issued through the same UK Branch that held the Post Office deposits so the same solution may be applied. That is either transfer them back to the Bristol & West plc subsidiary from which they were inappropriately transferred (and where the untransferred Bristol & West preference shares remain untouched by 'burden sharing') or transfer them to the UK subsidiary which holds the UK retail deposits under the valuable Post Office Contract.

I look forward to hearing from you as a matter of urgency. This is an unnecessary situation which is attracting significant political and regulatory attention in the UK and has the potential to become very damaging the the Bank's UK operations if it is not resolved.

Yours sincerely


Mark Taber
Tel: 01761 220027

cc: George Osborne - Chancellor of the Exchequer
Hector Sants - Chief Executive Financial Services Authority
Mark Hoban - Financial Secretary to HM Treasury
Phil Jones - Treasury Select Committee
Vince Cable - Secretary of State for Business, Innovation and Skills and President of the Board of Trade
Edward Davey - Parliamentary Under-Secretary of State (Employment Relations, Consumer and Postal Affairs)

Patrick Honohan - Governor Central Bank of Ireland
Nick Corcoran - Cardinal Capital

Letter from Finance Ministry 30 Sept 2011:

Bank of Ireland 13.375% Unsecured Perpetual Subordinated Bonds
 
 Dear Mr. Taber,
 
I confirm receipt of your email of 26 September 2011. As stated in my letter of 22 September there are matters that you raise which are more appropriately addressed by the Bank of Ireland (the “Bank”) which I assume will be addressed by the bank in due course.
 
It is necessary to regard the issues raised in your letter in context.   Prior to 31 March 2011 the Irish State provided almost €50 billion in capital to Irish Banks, €3.5 billion of which was provided to the Bank. On 31 March 2011, the Central Bank of Ireland announced the results of its stress tests which indicated that a further €24 billion of capital was required by the Irish Banks. The Central Bank’s stress tests identified that the Bank required a total of €5.2 billion of capital (€4.2 billion equity capital and €1 billion in contingent capital instruments) of this €24 billion.
 
The direct support provided to the Bank is in addition to the guarantees provided by the Government and emergency liquidity assistance provided by the Central Bank. Given the scale of the capital provided to the Bank and the other indirect financial support provided to the Bank, the Government decided that the cost for the Irish taxpayer should be reduced through other capital raising initiatives, including burden sharing with subordinated debt.   To be clear, but for the support of the Irish State at huge expense to its people, it is likely that the position of subordinated debt holders and other bond holders would be much worse.
 
To date, the majority of the €5.2 billion has been raised largely from a mix of burden sharing, private capital and the Irish State. There is, however, approximately €0.4 billion of capital which must still be generated by 31 December 2011 in order for the Bank to meet its regulatory requirements prescribed by the Central Bank.  The Government has been clear in its view that the remaining additional capital required for the Bank to reach the Central Bank’s stress test requirements may be met from further burden sharing with the remaining subordinated bondholders, as appropriate.
 
In relation to the Bristol and West bonds, the Bank launched a liability management exercise on 8 June 2011 which included these bonds. On 28 June 2011, the liability management exercise was terminated in respect of these bonds in light of the unique difficulties experienced in participating in the original offer. Subsequently, in August 2011, the bank initiated a second market based liability management exercise to facilitate participation, on a voluntary basis, by retail holders of these bonds who were provided with an opportunity to accept the redemption of their bonds on a voluntary basis.
 
We have noted the matters raised in your letter.   We will take cognisance of all relevant matters when considering the steps necessary to ensure that the Bank meets its regulatory requirements and the State meets its obligations under the Programme of Financial Support for Ireland entered into with the EU/IMF
 
Yours sincerely
 
 
Kevin Cardiff
Secretary General

Letter to Finance Ministry - 3 October 2011

3 October 2011

Dear Mr Cardiff

Thankyou for your email of 30 September.

While I appreciate that, in normal circumstances, many of the matters I have raised should be addressed by the Bank of Ireland they continue to refuse to provide any information or explanation for not doing so. Furthermore, I understand, and it has been reported in the Irish media, that the Bank now defers to the Finance Ministry on many decisions - especially those which many have political implications. It therefore seems likely that the Finance Ministry is involved in these matters and the decisions as to what information the Bank is able to provide and to whom it is allowed to speak about the raising of outstanding capital. I would ask you to answer the following questions:

1. Will the Finance Ministry allow the Bank until the 31 December to raise any outstanding capital itself?
2. Will the Finance Ministry allow the Bank to speak to potential providers of capital including holders of its outstanding subordinated debt?
3. Has the Finance Ministry or Central Bank imposed any restrictions on how the Bank may raise capital or the counting of internal capital generation measures available towards the PCAR 2011 target?
4. Is it policy that all subordinated bondholders must be forced to contribute irrespective of the contribution of bondholders as a class or the circumstances of how they became subordinated bondholders of the Bank?

In relation to your reference to the sum of €50 billion provided by the Irish State to Irish banks I would respectfully point out that the €3.5 billion provided to the Bank of Ireland represents a small proportion and was provided on commercial terms in exchange for preference shares and warrants. The Irish State has already had substantial cash returns of over €1.6 billion from its investments in Bank of Ireland as follows:

€215 million in cash dividends on preference shares
€491 million for cancellation of warrants
€753 million in guarantee fees
€180 million in transaction expenses

In addition the State received €280 million of ordinary shares in lieu of a preference share dividend.

You will appreciate that this represents a far greater return than would have been obtained had the same State funds been placed on money markets and is a very different situation to that of the other Irish banks which have required the vast majority of the State funds.

I would also point out that since the State provided the €3.5 billion in 2009 subordinated bondholders as a class have provided approximately €4.6 billion of capital for the Bank from €5.3 billion which was outstanding at the start of 2009. This includes approximately €2.1 billion raised from €2.6 billion of subordinated bondholders towards the Bank's PCAR 2011 highly conservative capital requirement. This is a much greater sum than has been provided by the private shareholders of the Bank, who are below subordinated bondholders in the capital hierarchy, at the time of the injection of State funds and those shareholders have been allowed to retain their shares, maintain their proportion through rights issues and stand to recover value as the Bank recovers.

I am sure you are aware that the people of the UK are likewise bearing the huge expense of recapitalising UK banks notwithstanding which UK taxpayers are providing loans of €7 billion to the Irish State to help at this difficult time. The Bank of Ireland also enjoys the benefit of the valuable UK Post Office banking contract which would greatly help a number of UK banks at present. Holders of the former Bristol & West PIBS were not included in any of the earlier voluntary offers (which were at much higher levels than the 35% recently offered) and have just contributed about €36 million of capital. There is no justification, need or legal basis for inflicting further losses on the remaining holders of the former Bristol & West PIBS many of whom, due to their age and circumstances, will be unaware of or will not have understood the inappropriate and misleading offer documents which have been sent to them this year. They also do not deserve to be caused further distress by the feeding of continued threats to the press.

I look forward to receiving answers to the questions I have asked as a matter of urgency.

Yours sincerely


Mark Taber
Tel: 01761 220027

CORRESPONDENCE WITH BANK OF IRELAND IN RESPECT OF NEW OFFER:

Email to Bank of Ireland - 1 Sept 2011:

Dear Mr Kealy

As you are aware from our previous communication I co-ordinate a campaign on behalf of thousands of UK individuals who hold the Bank of Ireland former Bristol & West PIBS. The majority of these are very unsophisticated (many now very elderly and vulnerable) individuals who invested in Bristol & West Building Society in the 1990's and do not have access or means to obtain professional advice.

I note the new offer to holders of these former PIBS announced by the Bank on 24 August. While we welcome the fact that this offer is more appropriate for retail investors than the previous one which was terminated in response to our campaign we have serious concerns about the accuracy and completeness of the information provided in the offer document in respect of the Bank's capital raising and the risk of the bonds being subject to a Subordinated Liabilities Order. A large number of holders have been in touch confused over the information provided in the Offer document which we do not believe is appropriate or sufficient to enable retail investors to properly assess the risks. In particular:

1. The amount of capital the Bank still has to raise

The Offer document states that the Bank still has to raise €0.51 billion of the €4.2 billion capital requirement as follows:

On 8 July 2011, the Central Bank of Ireland informed the Bank that, given the timeline required to complete the liability management exercises for certain bonds (including the Bonds) and the likely requirement for a "subordinated liabilities order" (as described under "Background to the Offer" below), the Central Bank of Ireland was extending its 31 July 2011 deadline for raising the additional capital required to 31 December 2011. The Central Bank of Ireland specified that this extension of deadline referred solely to the €0.51 billion capital expected to be generated by completion of the above liability management exercises.

However, in the Bank's Interim Report released on 10 August the further capital required to be raised by year-end is stated to be 'up to €0.4 billion'. This is stated in both the Chief Executive's Review on page 4 with the analysis of how €3.8 billion (net of expenses) has been raised on page 8. The Offer document is therefore not consistent with the Interim Report.

2. The means by which the outstanding capital may be raised

The offer document states that the outstanding capital must be raised solely from completion of the Liability Management Exercise. However page 9 of the Interim Report states that 'the capital is expected to be raised from a combination of the remaining liability management offers, further burden sharing or other means.' Again the Offer document is inconsistent with the Interim Report. In order that holders can properly assess the risks they need to know what other measures the bank is permitted to take to raise the outstanding capital - for example further equity issuance, early redemption / repurchase of senior bonds at a discount, business disposals etc.

3. How much of the outstanding capital the Bank has already raised

As noted in point 1 above the outstanding capital to be raised per the Interim Report is €0.11 billion less than the figure given in the Offer document. It is likely that the bank has since raised further capital which has not been disclosed in the Offer document. For example from the completion of the 'Canadian Notes' offer, from notes since tendered or agreed to be repurchased by large holders of other issues of subordinated debt who did not accept the initial offer, from early redemption / repurchase of other bonds at a discount, from other internal measures. This information is material and should be provided in the Offer document in order that holders can properly assess the risk.

4. The acceptable level of contribution from subordinated bondholders

The acceptable level of contribution towards the Bank's €4.2 billion capital target from bondholders appears to have been changed between the terminated Offer and the new Offer. In the initial Offer document the minimum acceptable contribution from subordinated bondholders was stated to be €2.12 billion as would have been the case if all holders had elected for the cash option. The level of contribution if no holders had accepted the offers and a SLO was sought and obtained was envisaged to be €2.28 billion. In both cases it was stated that the balance of the requirement would be raised from the rights issue. However, in the new Offer document the minimum level of contribution required from subordinated bondholders appears to have been raised to €2.54 billion (the €2.03 billion stated to have been raised so far plus the €0.51 billion stated further requirement). This implies that the Bank is now seeking a near 100% contribution from its previous €2.6 billion of outstanding subordinated debt rather than the approximately 80% level disclosed in the original Offer. This change and the corresponding reduction in the equity element of the capital raising from what was stated in the original offer is an unreasonable and unrealistic variation especially in light of the fact that the State's level of contribution to the capital raising has been substantially reduced by the €1.05 billion of equity now being provided by institutions. It seems highly likely that the Bank does have other means by which it could raise the outstanding capital without the need for a SLO to be obtained on the former Bristol & West PIBS and so the seeking of an SLO would not be necessary to preserve the financial position of the Bank.

5. The applicability of enforced burden sharing

The new Offer document states:

Further, the Minister for Finance of Ireland has a publicly stated policy of requiring investors who have provided regulatory capital to Irish banks (which would include investors in the Bonds) to contribute toward the capital raising exercises by Irish banks. 

It should be noted that this statement in respect of the Bonds is incorrect. Holders invested their money in a UK building society and not an Irish Bank. Furthermore, their investments were moved from Bristol & West plc to Bank of Ireland in 2007 without their consent and without them being given proper or sufficient notice or details of the changes in accordance with the Terms or the Trust Deed of the High Court hearing. They were therefore deprived their rights to make representations against the transfer. Furthermore, the Prospectus subsequently issued is grossly misleading in referring to the new issuer as the UK Branch of the Bank of Ireland. The thousands on UK pensioners holding these bonds should, therefore, not be included in the policy of enforced burden sharing just as the holders of the Bristol & West Preference Shares which were not transferred to the Bank of Ireland have not.

In light of the deadline for acceptance of the Offer (many brokers have imposed a 12 September cut-off) I trust that you will consider the above points as a matter of urgency and update holders with full, up to date and accurate facts so that they can properly assess the risks. Please acknowledge receipt of this email by return.

Best regards

Mark Taber
Tel: 01761 220027

cc: Patrick Honohan - Central Bank of Ireland
Hector Sants - Financial Services Authority
Mark Hoban - Financial Secretary to HM Treasury
Nicholas Davis - Treasury Select Committee

Response from Bank of Ireland - 7 Sept 2011

Dear Mr Taber

Having considered your email we have nothing further to add to the information contained in the revised offer document. The Bank is satisfied that the statements contained within the offer document are entirely correct.

Regards
Brian Kealy 
Head of Capital Management 
Bank of Ireland 

Further email to Bank of Ireland - 9 Sept 2011

Dear Mr Kealy

Thankyou for your response. I would respond that I maintain my position that the information provided in the Offer document is inaccurate, incomplete and inadequate to enable the holders of these bonds to be aware of and properly assess the risk of their bonds being confiscated or substantially devalued by a Subordinated Liabilities Order. I would remind you that the bonds are listed on the London Stock Exchange and, as such, the Bank is subject to the Financial Services and Markets Act 2000 in respect of the Offer document. This requires that materially inaccurate or misleading information is not deliberately presented to holders of UK listed securities.

I have evidence which demonstrates that, at the same time as the Offer was announced, the Bank was privately stating that the outstanding capital sum to be raised was €380 million and not €510 million as disclosed in the Offer document. Further that the Bank does have other capital raising measures available to it and the whole sum does not have to be raised from outstanding subordinated debt as stated in the Offer document. I, again, invite you to fully update all holders on the true position.

I would also point out that the Bank's continued stance, as stated in the Offer document that it does not exercise any control or influence over the actions of the Minister and is not in a position to predict whether the Minister will take any steps in respect of the Bonds in the future or, if so, what steps the Minister will take does not stand up to scrutiny. The decision to reduce the size of the rights issue from that envisaged in the original Offer document and require an increased contribution from subordinated bondholders was clearly made in consultation with the Central Irish Bank (CIB) and the Finance Ministry. Furthermore, the Credit Institutions Stabilisation Act only allows for a Subordinated Liabilities Order in circumstances where it is necessary to preserve or restore the financial position of the Bank. The Bank was set a figure of €4.2 billion (which includes a €0.5 billion contingency) under conservative assumptions. If the Bank raises this figure by the deadline agreed with the CIB then there is no need or justification for a Subordinated Liabilities Order. The Bank has both internal and external measures available to it which would raise the €380 million of capital apparently outstanding without the need for a Subordinated Liabilities Order. These measures include:

- inclusion of gains from early retirement of senior debt at a discount towards the capital target.
- formal offers from substantial holders of approximately €500 million of outstanding subordinated debt to convert their holdings into equity as evidenced in the Particulars submitted by these holders which is available at Particulars of claim.
- a review of provisions which the Bank internally acknowledges to be excessive.
- further equity issuance to the level envisaged in the original Offer document.

To the extent that the Bank clearly does have the ability and capacity to raise the capital required it clearly does have significant control over whether or not the Minister will be in a position to obtain a Subordinated Liabilities Order under the Credit Institutions Stabilisation Act. I therefore invite you to correct the statements made in the Offer document and to provide holders with full and accurate information. Furthermore the Bank has a duty under the Trust deed and a general duty of care to its creditors to take all reasonable steps to preserve their position rather than allow them to be faced with confiscation of their bonds.

While writing I would point out that the Bank of Ireland enjoys substantial commercial benefit from its contract to run the banking business of the UK Post Office which is particularly popular with UK pensioners. It therefore appears grossly inappropriate and inadvisable for the Bank or the Finance Minister to be seeking or threatening to confiscate or materially alters the bonds of    thousands of UK pensioners who invested their savings in a UK building society in the 1990's and have unwittingly, without proper notice or information and without consent had their investments reclassified as subordinated liabilities of a foreign bank.

I look forward to hearing from you as a matter of urgency.

Your sincerely

Mark Taber
Tel: 01761 220027

Further email to Bank of Ireland - 13 Sept 2011

Dear Mr Kealy

I refer to my email of 9 September to which you have not responded. I raised serious issues on behalf of UK individuals, over 500 of whom have contacted me, holding the former Bristol & West PIBS and I therefore request that you do not ignore their concerns. I would also remind you that you have failed to provide a response to my repeated request that the Bank consults with our adhoc committee on bondholders in the event that there is a genuine need for holders of the 13.375% former B&W PIBS to make a further contribution towards the Bank's capital target.

While writing I would raise a further issue which has come to light. This being that I have been informed that last week, on 7 September, the Bank paid the discretionary coupon on its  tier 1 EUR 600M 7.4 % Guaranteed Step-up Callable Perpetual Preferred Securities (XS0125611482). The terms of these securities state as follows:

If the Issuer determines, prior to the making of a payment (other than a payment in respect of principal) that the Guarantor is, or the making of such payment will result in the Guarantor being, in non-compliance with applicable Capital Regulations, the Issuer is required, subject to the dividend restriction described below, to defer that payment. Such exceptionally deferred payment may be satisfied at any time by the Issuer giving not less than 16 business days notice of such satisfaction, and must, unless the Issuer elects to defer such payment pursuant to its general right to defer referred to below, be satisfied on the next following Coupon Payment Date if, on the 20th business day prior to such Coupon Payment Date, the Guarantor no longer is, and payment of a Coupon Payment will not result in it being, in non-compliance with such applicable Capital Regulations. Exceptionally Deferred Coupon Payments will not accrue interest on the deferred payments.

In which:
 
"Capital Regulations" means at any time the regulations, requirements, guidelines and policies relating to capital adequacy then in effect of the Central Bank of Ireland or such other governmental authority in Ireland (or, if the Guarantor becomes domiciled in a jurisdiction other than Ireland, in such other jurisdiction) having primary bank supervisory authority with respect to the Guarantor;

These terms clearly give the Bank the contractual right to defer coupons and, furthermore, require deferral in the event of the Bank not being in compliance with its Capital Regulations as set by the Central Bank of Ireland. Therefore, in paying the coupon, the Bank is implying and sending a clear signal to the market that it is in compliance with its Capital Regulations. This contradicts the impression given and statements made in the Offer document for the 13.375% bonds and I invite the Bank to provide confirmation on this issue.

Furthermore, in the event that the Bank maintains that it still has not met its capital target, the payment of the coupon when the Bank has the contractual right to defer and so contribute to its capital position the Bank is failing to take a reasonable and available measure to raise capital. Under such circumstances, and in the context of Section 28(2)(f) of the Credit Institutions Stabilisation Act, there can be no case for the Finance Minister or the Governor of the Central Bank to be of the opinion that a Subordinated Liabilities Order is necessary for preserving or restoring the financial position of the Bank.

I look forward to hearing from you as a matter of urgency.

Yours sincerely


Mark Taber
Tel: 01761 220027

Response from Bank of Ireland - 14 Sept 2011:

Dear Mr Taber

We have considered your emails of 9 and 13 September.  As noted previously, we have nothing further to add to the information contained in the revised offer document and the Bank remains satisfied that the statements contained within the offer document are entirely correct.   As to your recent comments regarding the applicable Capital Regulations you will be aware from the revised offer document that the deadline for raising the additional capital has been extended to 31 December 2011. 

Yours sincerely
Brian Kealy 

Further email to Bank of Ireland - 14 Sept 2011:

Dear Mr Kealy

So in summary:

- the Bank is refusing to confirm how much capital is still has to raise before the 31 December deadline.
- the Bank is refusing to state what steps it is taking to raise this capital.
- the Bank is refusing to take steps, such as deferral of discretionary coupons, which would help to raise capital.
- the Bank is refusing to talk to bondholders who have made offers to help raise capital.
- the Bank appears to be relying on the Irish Finance Minister to raise the capital by obtaining a subordinated liabilities order despite the fact that this would confiscate the investments of thousands of vulnerable UK pensioners (many now in their eighties and nineties who have no idea that this is happening) who did are not 'speculators who chanced their money in an Irish banks' but rather innocent victims who invested their pension savings in safe PIBS of a UK building society in the early 1990's for pension income and without consent or even proper notice have had these savings inappropriately reclassified as subordinated liabilities of a foreign bank which has run into trouble due to the irresponsible practices of its directors many of whom are still in their jobs !

Meanwhile the Central Bank of Ireland has today written to say:

The process through which Bank of Ireland raises this capital is a decision for  the bank itself and only involves the Central Bank to the extent that it must be satisfied that the end result meets the capital requirements set out by the Central Bank.

If it is the Bank's decision then why is it doing nothing? If this inaction leads to the Irish Finance Minister seeking an SLO, something which would have to be done very shortly in order for it to take effect before the 31 December deadline, then the Bank's behaviour towards these thousands of UK pensioners will be seen to be nothing short of disgraceful with inevitable consequences for the Bank and its reputation. I again invite you to provide answers and explain what is going on without further delay.

Your sincerely

Mark Taber
Tel: 01761 220027

Email to Bank of Ireland - 20 Sept 2011:

20 September 2011

Dear Mr Kealy

I refer to my email of 14 September (copy below) to which you have not responded. I would advise you that the current offer and its unnecessary attempt to coerce holders into surrendering their bonds by using the threat of a Subordinated Liabilities Order (SLO) is causing a great deal of distress amongst holders of the former Bristol & West PIBS. As a consequence of the Bank's failure, despite repeated requests, to provide accurate and complete information about the status of its capital raising and the steps it is taking I have performed an analysis based on publicly available information and enquiries made.

1. What steps can the Bank take to raise the outstanding capital?

In the current offer document the Bank states:

On 8 July 2011, the Central Bank of Ireland informed the Bank that, given the timeline required to complete the liability management exercises for certain bonds (including the Bonds) and the likely requirement for a "subordinated liabilities order" (as described under "Background to the Offer" below), the Central Bank of Ireland was extending its 31 July 2011 deadline for raising the additional capital required to 31 December 2011. The Central Bank of Ireland specified that this extension of deadline referred solely to the €0.51 billion capital expected to be generated by completion of the above liability management exercises.

This gives the impression that the outstanding capital must be raised from liability management failing which their will be a SLO. However, when asked about alternative methods of raising the capital the Central Bank replied in writing as follows:

The process through which Bank of Ireland raises this capital is a decision for  the bank itself and only involves the Central Bank to the extent that it must be satisfied that the end result meets the capital requirements set out by the Central Bank.

Furthermore the Central Bank's detailed Financial Measures Programme report dated 31 March 2011does not stipulate any conditions as to how the Bank can raise the capital required.

Investors should not be left is a position of wondering whether they should believe the Bank of Ireland or the Central Bank which regulates it.

2. How much capital does the Bank still need to raise?

From reading the Central Bank's Financial Measures Programme (FMP) published on 31 March 2011 the base point for raising further capital is 31 December 2010 and the €4.2 billion capital requirement was the sum, at the base point, which would be required for the Bank to maintain a Core Tier 1 ratio of 6% under an adverse stress scenario up to 31 December 2013 plus a €0.5 billion buffer to cover further losses.

The FMR specifically states (on page 35) that the generation of new capital other than through operating profit was prohibited for the purposes of the PCAR analysis. It is therefore the case that all non-core capital accretive measures taken by or available to the Bank between the base point of 31 December 2010 and the Central Bank deadline of 31 December 2011 should be counted towards the €4.2 billion target. Below is my analysis of the current position based on publicly available information I have identified:

Gain on disposal of BIAM (Jan 2011) €43M (source Page 17 of the Interim Report)
Gain on disposal of BOISS (June 2011) €37M (source Page 17 of the Interim Report)
Gain on LT2 Canadian subordinated debt LME (6m ended 30 June 2011) €11M (source Page 17 of the Interim Report)
Core Tier 1 generated by LME in July / August 2011 €1,930M (source Page 21 of the Interim Report)
Core Tier 1 generated by exercise of sub-debt call options €100M (source Page 21 of the Interim Report)
Proceeds from Rights Issue (August 2011) €1,908M (source Page 8 of the Interim Report)
Gain on late settlement Canadian $ Notes LME (August 2011) €30M (source RNS 1565M18 announcement 10 August 2011)
Interest saved on €2 billion of subordinated debt €68M (see Note 1)
Excess PCAR allowance for Impairment of financial assets €413M (see Note 2)

TOTAL €4,540M

Note 1:  From Page 21 of the Interim Report €1.8 billion of subordinated liabilities were exchanged for ordinary stock, €0.1 Bn were exchanged for cash and €0.1 billion were extinguished as a result of the exercise of call options. A further €0.03 billion were exchanged from the late settlement Can $ Notes (source RNS 1565M18 announcement 10 August 2011). This reduces the level of subordinated liabilities on which the Bank pays interest in the second half of 2011 by €2.03 billion. In the first half of 2011 interest of €88 million (source Note 3 of the Interim Report) was expensed on €2,633 million (source Note 29 of the Interim Report) of subordinated liabilities. This implies an annualised average rate of 6.7% and a capital accretive saving of €68 million on the €2.03 billion of subordinated liabilities extinguished as a result of the LME.

Note 2: The PCAR which arrived at the €4.2 billion capital requirement made allowance for Impairment of financial assets of €2,215 million in 2011 (source FMP, Page 31, Table 11). In the first half of 2011 the actual level of impairments charged to the income statement was €901 million (source Interim Report, Page 10). Assuming no deterioration in the second half (a reasonable assumption given the improving economic situation in Ireland) the actual level of asset impairments for 2011 will be approximately €1,802 million. The PCAR allowance for 2011 is therefore approximately €413 million higher than the actual level and so the capital requirement should be adjusted to reflect this known variance.

The above analysis excludes other non-core gains of €81 million arising from fair value adjustments of credit spreads and contractual capital accretive measures available to the bank in respect of deferral of dividends and interest on the Bank's preference shares and Tier 1 notes. There are likely other capital accretive measures, such as asset disposals, available or in progress and expected to complete before the 31 December deadline set by the Central Bank.

It is therefore clear that the Bank already has sufficient capital to maintain the PACR target Core Tier 1 ratio of 6% under the adverse stress scenario outlined in the FMP. Furthermore the Bank has announced that it comfortably passed the recent European Banking Authority stress tests. It follows that a SLO in respect of these former Bristol & West PIBS is not necessary to preserve or restore the financial position of the Bank, should not be applied for and their are no grounds for obtaining one under the Credit Institutions (Stabilisation) Act. The threat of an SLO is causing great distress amongst thousands of UK pensioners and is being used by the Bank and / or the Irish Government to coerce these individuals to accept the Offer.

It is clear to all impartial observers that the current lack of disclosure and conflicting statements are designed to promote fear and duress amongst thousands of elderly and unsophisticated UK pensioners. I therefore call upon the Bank to inform the Governor of the Central Bank and the Irish Finance Minister of the genuine position (as detailed above) and make this publicly available without further delay. Failure to do so will clearly demonstrate that:

1. the Bank does not intend to perform its legal obligations under the Terms and Trust Deed and is seeking to rely upon an SLO to extinguish the former PIBS holders' contractual rights against the Bank;
2. an SLO made in those circumstances would not be intended to address an immediate or credible threat to the Bank’s solvency (there being no such threat) or to restore the Bank to viability or otherwise to preserve or restore the financial situation of the Bank (there being no such need); but rather, such an SLO would be intended:

i.       to assist the Bank in exceeding the already extremely conservative capital requirements imposed by the CBI, these requirements having already been met as detailed above,
ii.      to ensure that subordinated debt holders contribute a significant element of that capital,
iii.     to give effect to the Government’s political objective of “burden sharing”
iv.     to create value for the shareholders at the expense of the Bank’s creditors by unilaterally imposing reduced contractual entitlements on subordinated debt holders,
v. to extinguish expensive subordinated debt for the commercial benefit of the Bank.

These are not the actions of a Bank which is fit and proper to conduct banking business in the UK or to represent the banking business of the UK Post Office. I would also point out that if an SLO is sought and it is necessary for holders to challenge the SLO or act against the Bank in the English or Irish Courts my numerous and reasonable requests for the provision of accurate, complete and appropriate information will be brought to the attention of the Court and will be relevant in the issue of costs.

Please acknowledge receipt of this email by return and inform me how long it will take you to provide a substantive response.

Yours sincerely


Mark Taber
Tel: 01761 220027
Email: mark@fixedincomeinvestments.org.uk

cc: George Osborne - Chancellor of the Exchequer
Hector Sants - Chief Executive Financial Services Authority
Mark Hoban - Financial Secretary to HM Treasury
Phil Jones - Treasury Select Committee
Vince Cable - Secretary of State for Business, Innovation and Skills and President of the Board of Trade
Edward Davey - Parliamentary Under-Secretary of State (Employment Relations, Consumer and Postal Affairs)
Michael Noonan - Irish Finance Minister
Patrick Honohan - Governor Central Bank of Ireland

Response from Bank of Ireland - 21 Sept 2011:

Dear Mr Taber,

The Bank does not agree with your interpretation of the impact of the various items that you have listed or the conclusions you have reached.  The Bank also notes that it received forbearance from the Central Bank with respect to the additional capital of €0.51 billion on 8th July 2011 at a time when almost of the items you list were already known and considered. 

As you note available capital was stated in the FMP to include profits or losses over the period to Dec 2013 and a number of the items you highlight have already had been taken into account in the FMP. In addition we note that the FMP figures also included the assumed balance of capital still to be raised post the 28 November 2010 assessment. Also provisions with respect to impairment losses in the FMP were expressed on a three year basis thus it cannot be assumed that an apparent undershoot in a six month period should translate to a saving. In addition credit spread movements under regulatory rules do not count for capital purposes. Also the impact of disposals of loan portfolios were incorporated into the figures which underlay the PCAR analysis presented in the FMP. 

The Bank therefore repeats its previous communications to you.  It has nothing further to add to the information in the revised offer document and it remains satisfied that the statements contained within it are entirely correct. 


Yours sincerely
 
Brian Kealy 
Head of Capital Management 
Bank of Ireland 

Email to Bank of Ireland - 21 September 2011:

22 September 2011

Dear Mr Kealy

Thankyou for your email. Unfortunately your response concentrates on items which I stated I was not including (such as credit spread movements) rather than properly addressing the matters raised. For example, you have unhelpfully not identified which items 'have already been taken into account in the FMP'. From having now read the Bank's full 2010 Annual Report it appears that your are referring to the first three items in my analysis which total just €91 million of the €4,540 million of capital which I identified. Can you please confirm that these are the items you are referring to? It appears that the Bank was then disclosing and counting capital raised from measures which had not yet completed but now prefers not to disclose any measures that it is taking to raise capital ! In this regard I have evidence that the Bank has privately given key stakeholders the impression it has available to it a number of internal capital generation mechanisms which will result in them meeting the required target. Excluding these three items already included in the FMP PCAR the capital raised to date still puts the Bank in excess of the stated CBI target 15% Core Tier 1 ratio on a proforma basis as at 31 December 2010.

Furthermore, your statement that 'provisions with respect to impairment losses in the FMP were expressed on a three year basis thus it cannot be assumed that an apparent undershoot in a six month period should translate to a saving' is incorrect. As stated in my original analysis the FMR specifically identifies the asset impairment assumptions for each of the years 2011, 2012 and 2013 (source FMP, Page 31, Table 11) and it stands that in light of actual figures which, 9 months into the year, are known with a degree of certainty the assumption for 2011 asset impairments is substantially higher than the reality which has come to pass.

I would also inform you that your statement that 'the impact of disposals of loan portfolios were incorporated into the figures which underlay the PCAR analysis presented in the FMP' is not correct in the context of capital raised. The FMP analysis only incorporates the impact of loan portfolio disposals in the context of deleveraging. It does not assume any capital accretive gains arising from such disposals. Therefore, in the event that the Bank expects to complete disposals of portfolio at a premium to book value the resulting capital accretion should be included in the capital raised. I would add that I did not assume or include any such capital in my analysis due to the failure of the Bank to disclose what steps it is taking in this regard.

Your response fails to address the serious issue of the Bank deliberately presenting out of date information and statements in the Offer document in such a way as to induce fear and uncertainty to coerce the unsophisticated holders of the former Bristol & West PIBS into accepting the Offer. I refer you to the following excerpt from the Offer document which selectively quotes two out of date statements from the Finance Minister and Central Bank and refers to an out of date figure for the capital still to be raised:

The Bank notes that the Bonds would be considered "subordinated liabilities" for the purposes of the Stabilisation Act. There is a significant risk that a subordinated liabilities order will be made in respect of the Bonds if the Minister, having consulted with the Governor of the Central Bank of Ireland, is of the opinion that it is necessary to make a subordinated liabilities order to preserve or restore the financial position of the Bank. Such an order could result in a writing down of (that is, reducing the principal amount payable on) the Bonds partially or in their entirety or the removal of rights to receive interest. In this regard the public statements of the Minister in relation to the appropriateness of "burden sharing" by holders of subordinated debt, with particular reference to the Bank, should be noted. In addition, on 31 May 2011 the Minister specifically stated in relation to the liability management exercises ("LMEs") of the Bank, EBS Building Society and Irish Life & Permanent plc that:

“[t]he levels of burden-sharing in these LMEs are the minimum acceptable to the Government. If these LMEs fail to deliver the expected core tier 1 capital gains to each of the banks, the Government will take whatever steps are necessary under the Credit Institutions (Stabilisation) Act 2010 or otherwise to ensure that burden sharing is achieved. Any further action, after investors have had an opportunity to take part in these LMEs, will result in severe measures being taken in respect of the subordinated liabilities.”

On 8 July 2011, the Central Bank of Ireland informed the Bank that, given the timeline required to complete the liability management exercises for certain bonds (including the Bonds) and the likely requirement for a subordinated liabilities order, the Central Bank of Ireland was extending the 31 July 2011 deadline for raising €0.51 billion in additional capital required to 31 December 2011. The Central Bank of Ireland specified that this extension of deadline referred solely to the €0.51 billion capital expected to be generated by completion of the above liability management exercises.

The Finance Minister's statement quoted was made on 31 May (3 months before the Offer). This was well before the Bank's successful LME and rights issue and so potentially very misleading. It is beyond comprehension that Ireland's premier bank could not approach the Finance Minister for an update on his position prior to launching the Offer. Furthermore, a more up to date statement by the Finance Minister on 26 July 2011 was already available as follows:

http://www.finance.gov.ie/viewdoc.asp?DocID=6945&CatID=78&StartDate=1+January+2011

Direction Order in relation to Irish Life & Permanent Group Holdings plc and Irish Life & Permanent plc (together “ILP”)

Following an application by the Minister for Finance, the High Court has made a Direction Order under the Credit Institutions (Stabilisation) Act 2010 to facilitate the necessary recapitalisation of ILP by 31 July 2011 to meet with the Central Bank’s regulatory requirements. The Minister sought the order after consultation with the Central Bank of Ireland.
On the granting of the Direction Order, the Minister said:

“The direction order is necessary to facilitate the recapitalisation of ILP in the sum of €4 billion, €2.9 billion of which must be in place by 31 July 2011. 

It was clear that ILP was not in a position to raise sufficient capital itself, and therefore ILP is reliant upon the State to provide the necessary capital in order to comply with the Central Bank requirements.


The Government set out actions on 31 March last, which it would take to mitigate the cost to the taxpayer of bank recapitalisations. These included significant contributions from subordinated debt holders and the sale of assets to generate capital. In the case of ILP, these actions are expected to reduce the investment required from the State to €2.7 billion.

Over the course of the ILP recapitalisation process, the Government has listened to concerns of ILP, its shareholders and liaised with ILP and corresponded with certain shareholders and lawyers acting on their behalf. In particular, I would like to comment on one aspect.

As is illustrated by the case of Bank of Ireland, the Government is willing to listen to proposals from, and negotiate with, credible investors to reduce the burden on Irish taxpayers. In the case of ILP, the State has not been approached with credible propositions by any such investors and, despite invitations, has not received any concrete proposals or been introduced to the unnamed potential investors which certain shareholders have stated are willing to invest in ILP. The seriousness of such interest can be gauged from the lack of genuine engagement.

We remain open to engage with persons genuinely interested in investing in ILP and the other Government supported banks, but in view of the pending deadline at the end of this week as set out in the EU/IMF programme of assistance, we have no option but to proceed to a direct recapitalisation of the banks by the State.”

It can only be concluded that the Bank's failure to obtain an update from the Finance Minister or to quote a more recent statement was a deliberate act to mislead holders of the former Bristol & West PIBS.

Furthermore the 8 July notice from the Central Bank as outlined in the Offer document is clearly intended to give readers the impression that the amount of capital still to be raised is €0.51 billion and that the Central Bank expects this to be raised from liability management. Again, it is incomprehensible that the Bank was unable to obtain an update on this from the Central Bank or to provide an up to date figure for the capital still to be raised. Two weeks ago, a specific enquiry to the Central Bank in respect of now the Bank of Ireland is able to raise the outstanding capital received the following response:

The process through which Bank of Ireland raises this capital is a decision for  the bank itself and only involves the Central Bank to the extent that it must be satisfied that the end result meets the capital requirements set out by the Central Bank.

The Bank failed to disclose the true position of the Central Bank, the current level of capital still to be raised or the measures by which is seeking to raise this capital in the Offer document. These failings also appear to be deliberate measures to mislead holders of the former Bristol & West PIBS to coerce them into surrendering their investments. In failing to provide up to date or accurate information and statements the Bank is deliberately creating an information vacuum and confusion over which is impossible for even sophisticated investors to unpick. I have had calls from many IFA's who are trying to guide their clients but are completely bewildered by the information presented in the Offer document. The Bank is well aware and has acknowledged the unique nature of holders of these former PIBS and I again call on it to take action to rectify the position without further delay.

I look forward to hearing from you as a matter of urgency.

Yours sincerely


Mark Taber
Tel: 01761 220027

Response from Bank of Ireland - 22 September 2011:

Dear Mr Taber,

The Bank does not agree with your interpretation of the impact of the various items that you have listed or the conclusions you have reached.  The Bank therefore repeats its previous communications to you.  It has nothing further to add to the information in the revised offer document and it remains satisfied that the statements contained within it are entirely correct. 

Yours sincerely
Brian Kealy 
Head of Capital Management 

Email to Bank of Ireland - 22 September 2011:

Dear Mr Kealy

You have failed to comment on any of the evidence I have provided of more recent statements from the Central Bank and Finance Minister which conflict with those included in the latest Offer document.

You have failed to respond to my request that you speak to the Central Bank and Finance MInister to seek clarification of these points and make this information publicly available. Will you now do so or, if not, at least state your reason for not doing so? This is a reasonable request and demands a response.

You are failing to respond on how much capital the Bank will has to raise or on what steps it is taking to do so.

You are attempting to dismiss without explanation the capital raising measures I have taken the trouble to carefully identify or even to say which items you do not agree with. Some of the gains I have listed are derived directly from the Bank's own announcements so, are you now saying, that these were not correct?

The Bank's attitude towards and treatment of  the thousands of UK pensioners who hold the former Bristol & West PIBS is disgraceful and completely unnecessary and, as acknowledged by the FSA, is causing great distress. The Bank could help by taking the time to provide the information I have requested but you prefer to dismiss these requests out of hand with two sentence responses. I would point out that, in so doing, you are perpetuating the inaccurate, incomplete and misleading information contained in the Offer document which is an offence under the Financial Services and Markets Act 2000.

I do not hold these former Bonds myself but am a volunteer trying to help those who do because the vast majority are not in a position to understand or do anything about what is going on. Hundreds of holders have called me over the past week confused about the situation and in great distress about the current Offer. I have also had many IFA's calling me who have been unable to interpret it. I would remind you that:

- these UK pensioners did not invest their money in the Bank of Ireland but rather in a UK Building Society;
- the Bank transferred their holdings from Bristol & West to itself in Ireland in 2007 without seeking the consent of holders, without giving holders proper notice or information or informing the Court, which sanctioned the transfer, of the nature of the holders or the materially prejudicial affect it would have on their position;
- the Bank failed to put in place a guarantee on Transfer as required by the Trust Deed;
- the Bank uniquely excluded these holders from its previous voluntary liability management exercises which were at substantially higher levels to the current Offer;
- the Bank is now one of the most strongly capitalised in Europe with a Core Tier 1 ratio of approximately 15% and has sufficient capital to withstand adverse stress tests based on conservative assumptions so there is need or legal basis for using the threat of a subordinated liability order to coerce vulnerable investors into surrendering their property at a significant discount.

There is therefore, no legal or moral basis for continuing to cause unnecessary distress to thousands of elderly folk who have a right to quiet enjoyment of their property. So DO NOT dismiss this email of hand but take the trouble to speak to the Finance Minister and the Central Bank Governor about the situation and make an announcement in order to avoid further distress.

I look forward to hearing from you as a matter of urgency.

Yours sincerely


Mark Taber
Tel: 01761 220027

Response from Bank of Ireland - 22 September 2011:

Dear Mr Taber,

As already stated previously the Bank does not agree with your interpretation of the impact of the various items that you have listed or nor with the conclusions you have reached.  It does not believe that offer document conflicts with the statements you refer to. The Q&A put on the FSA website is factual and doesnt refer to bondholder stress. The Bank therefore repeats its previous communications to you.  It has nothing further to add to the information in the revised offer document and it remains satisfied that the statements contained within it are entirely correct. 

Yours sincerely

Brian Kealy 
Head of Capital Management 

Email to Bank of Ireland - 22 September 2011:

Dear Mr Kealy

The FSA's recognition that the Bank's actions have caused 'considerable distress' to holders of the former PIBS is stated in a publicly available background note from the FSA which you can read for yourself at:

https://docs.google.com/viewer?a=v&pid=explorer&chrome=true&srcid=0B8hzbUJuMAkqNTk1MjBlYmUtYTU3Yy00MThkLWJmM2YtMGJlZjY2MDZkOTM2&hl=en_GB

I cannot believe that the Bank is not aware of the continued distress it is unnecessarily causing amongst elderly UK pensioners. If not I suggest you contact Hector Sants at the FSA (to whom I have copied his email) for details of the number of distressed holders who have contacted them. This has now been dragging on for nearly 4 months and the Bank still refuses to provide an clarification on the true position which is now causing extreme stress to a large number of people.

Your latest response still fails to answer the simple questions I am asking. I will try to make this easier for you by providing a list of 6 questions to which you can provide YES / NO answers very quickly:

1. The statements made in the Offer document of 24 August may have been factually correct at the time they were made by the Finance Minister (on 31 May) and Central Bank (on 11 July). However a lot happened between 31 May and 24 August including the Bank raising in excess of €4 billion of Core Tier 1 capital and becoming one of the highest capitalised banks in Europe. These events clearly have a significant impact on whether a subordinated liabilities order in respect of a small £75 million issue of retail bonds would be necessary to preserve or restore the financial position of the Bank. It is therefore not unreasonable to expect that the Bank would seek and obtain an update to be included in what is, in effect, a coercive offer in order to avoid potentially misleading those to whom the offer was made. Will the Bank now commit to seek to obtain such updates from the Finance Minister and Central Bank and inform holders accordingly? YES / NO

2. Does the Bank disagree with the impact of all the items I have listed in estimated the amount of capital raised? YES / NO

3. Will the Bank state the level of capital it still has to raise to meet the 2011 PCAR? YES / NO

4. Was the only outstanding capital requirement figure of €510 million stated in the Offer document correct as at 24 August 2011? YES / NO

5. Will the Bank state what other measures it is taking to raise capital towards any outstanding requirement? YES / NO

6. Is the Bank prepared to speak to holders of its outstanding subordinated debt about offers they have made to provide any outstanding capital requirement? YES / NO

In view of the fact that the Offer closes at the end of today please provide simple YES / NO answers to the above 6 questions as a matter of urgency and, in any case, before 5pm today.

I look forward to hearing from you.

Yours sincerely


Mark Taber

Letter to Bank of Ireland- 14 October 2011

Dear Mr Kealy & Mr Boucher

I would remind you that the former Bristol & West PIBS are retail bonds listed in the UK on the London Stock Exchange.  Issuers of London-listed securities have the ongoing obligation to disclose to the investor community any information deemed to be price- sensitive, which must be disseminated to the market via a Regulatory Information Service such as the London Stock Exchange’s Regulatory News Services (RNS).

The market is currently pricing the former B&W PIBS on the expectation of a subordinated liabilities order being obtained on terms worse than the 35p available under the recent voluntary offer. The current bid price of the former B&W PIBS is 32p compared to 66p for the supposedly junior B&W Preference Shares which have a substantially lower coupon. This is largely because the Bank of Ireland made the following statement in the 24 August Offer document:

"On 8 July 2011, the Central Bank of Ireland informed the Bank that, given the timeline required to complete the liability management exercises for certain bonds (including the Bonds) and the likely requirement for a "subordinated liabilities order" (as described under "Background to the Offer" below), the Central Bank of Ireland was extending its 31 July 2011 deadline for raising the additional capital required to 31 December 2011. The Central Bank of Ireland specified that this extension of deadline referred solely to the €0.51 billion capital expected to be generated by completion of the above liability management exercises."

The figure of €0.51 billion was inaccurate and misleading as at 24 August 2011 as is the impression given that the Central Bank expects the capital to be raised from liability management exercises. Below is the answer the Central Bank have provided to me when I wrote to Patrick Honohan seeking confirmation on this point:

"The process through which Bank of Ireland raises this capital is a decision for the bank itself and only involves the Central Bank to the extent that it must be satisfied that the end result meets the capital requirements set out by the Central Bank.   Therefore, it is not the Central Bank’s role to involve itself in the process being pursued by Bank of Ireland; rather its role is to ensure that Bank of Ireland is in a position to meet its capital and other regulatory requirements, thus providing the marketplace with confidence in the bank."

Furthermore the Bank of Ireland has failed to inform the market of capital generated since the Rights Issue in July such as the gain on late settlement notes, gain on former B&W PIBS tender, interest saving arising from LME as detailed below. These are all material and price sensitive capital accretions in the context of the Bank's capital target.

Core Tier 1 generated by LME in July / August 2011 €1,930M (source Page 21 of the Interim Report)
Core Tier 1 generated by exercise of sub-debt call options €100M (source Page 21 of the Interim Report)
Proceeds from Rights Issue (August 2011) €1,908M (source Page 8 of the Interim Report)
Gain on late settlement Canadian $ Notes LME (August 2011) €30M (source RNS 1565M18 announcement 10 August 2011)
Interest saved on €2 billion of subordinated debt €68M (see Note 1)
Gain on Tender Offer on 13.375% PSBs €45M (see Note 2)

SUB TOTAL €4,081M

OTHER ITEMS:

Excess PCAR allowance for Impairment of financial assets €413M (see Note 3)
Potential gain on recent investments in Irish Sovereign Debt €300M + (see Note 4)

Note 1:  From Page 21 of the Interim Report €1.8 billion of subordinated liabilities were exchanged for ordinary stock, €0.1 Bn were exchanged for cash and €0.1 billion were extinguished as a result of the exercise of call options. A further €0.03 billion were exchanged from the late settlement Can $ Notes (source RNS 1565M18 announcement 10 August 2011). This reduces the level of subordinated liabilities on which the Bank pays interest in the second half of 2011 by €2.03 billion. In the first half of 2011 interest of €88 million (source Note 3 of the Interim Report) was expensed on €2,633 million (source Note 29 of the Interim Report) of subordinated liabilities. This implies an annualised average rate of 6.7% and a capital accretive saving of €68 million on the €2.03 billion of subordinated liabilities extinguished as a result of the LME.

Note 2: Book value of £75 million nominal outstanding as at 31 Dec 2010 was €144 million. 39% (£29 million) Tender Offer acceptance rate means bonds with book value of €56 million were repurchased at 35% (cost of £29 million x 35% x 1.15 = €11.7 million) so giving a gain of €45 million.

Note 3: The PCAR which arrived at the €4.2 billion capital requirement made allowance for Impairment of financial assets of €2,215 million in 2011 (source FMP, Page 31, Table 11). In the first half of 2011 the actual level of impairments charged to the income statement was €901 million (source Interim Report, Page 10). Assuming no deterioration in the second half (a reasonable assumption given the improving economic situation in Ireland) the actual level of asset impairments for 2011 will be approximately €1,802 million. The PCAR allowance for 2011 is therefore approximately €413 million higher than the actual level and so the capital requirement should be adjusted to reflect this known variance.

Note 4: It has been reported by market sources and in the press that the Bank has invested a significant sum of the capital raised to date from the 2011 PCAR in Irish Government bonds. Since investment the prices of these bonds have increased significantly and the gains arising on their sale would easily cover any outstanding capital requirement. Furthermore, in the current crisis it appears grossly irresponsible for a Bank, which you regulate, to be investing Core Tier 1 regulatory capital raised in sub-Prime peripheral Sovereign debt. The Central Bank should, therefore, insist that this capital is invested in safer deposits and the resulting gain be taken towards the Bank's capital target.

I also understand from reliable sources that the Bank has other internal capital generating measures available to it. It is therefore clear that the Bank has raised considerably more capital than it has announced to the market and that it has sufficient capital available from other measures, such as sale of Irish sovereign bonds, to ensure that it meets its target by 31 December without seeking to rely on a subordinated liabilities order in respect of the former B&W PIBS. There is absolutely no justification for the Bank to continue to mislead the market about its capital position and failing to update is a breach of the Bank's ongoing obligations as an issuer of UK listed retail bonds. The Bank, through illegally and against protestations of the Trustee and myself including the former B&W PIBS in the LME,  has already caused considerable loss to former holders of the B&W PIBS, who sold their bonds in the market in the low 20's between the LME being announced and being terminated in respect of the former B&W PIBS.

I therefore demand that the Bank updates the market in accordance with its ongoing obligations in order that further loss is not unnecessarily inflicted on the thousands of UK pensioners who rely on the former B&W PIBS for irreplaceable income.

Yours sincerely


Mark Taber
mark@fixedincomeinvestments.org.uk
Tel: 01761 220027

Email to Bank of Ireland - 19 Oct 2011

Dear Mr Kealy & Mr Boucher

I refer to my email of 14 October to which you have not responded. The email provides credible evidence and analysis that the Bank of Ireland has raised considerably more capital towards the target set by the Central Bank of Ireland than has been announced to the market. I note that on 14 October the Bank of Ireland announced that it had disposed on €5 billion of loan portfolios for consideration of €4.54 billion as part of its deleveraging commitment. However, in common with other capital raising measures announced, the impact of this disposal on the Bank's outstanding capital requirement has not been disclosed. This is material, price sensitive information in the context of the Bank's listed subordinated bonds and the Bank has an ongoing obligation to inform the market.

It would appear the the disposal will have had a substantial impact on the Bank's PCAR 2011 position. The announcement of 14 October states:

"The Bank's incremental capital requirement arising from the 2011 PCAR of €4.2 billion (including a regulatory buffer of €0.5 billion) was set to cover, inter alia, a conservative estimate of losses arising from deleveraging under an adverse stress scenario.  The capital impacts of the divestments set out above are lower than those assumed by the Bank in preparing its own financial targets and are also within those base case discounts assumed as part of the 2011 Prudential Capital Assessment Review ("PCAR") and Prudential Liquidity Assessment Review ("PLAR") processes."

The Bank's June LME announcement stated:

"The deleveraging plan envisages certain loan portfolios / lending businesses of the Group continuing to be in managed run down or disposed of on an orderly basis resulting in an expected reduction in the Group’s total loans and advances to customers (net of impairment provisions) from €114 billion at 31 December 2010 to approximately €90 billion by 31 December 2013. This will be achieved through an approximately €30 billion reduction in the Group’s non‐core loan portfolios of which approximately €10 billion will be in the form of asset disposals. Incorporated within the Core Tier 1 capital requirement of €4.2 billion is what the Central Bank described as a “prudent” estimate of losses arising on the approximately €10 billion asset disposal under an adverse stress scenario."

It being the case that the losses on the disposals are within the Bank's own estimates and within the BASE CASE assumptions of the 2011 PCAR and PLAR whereas the €4.2 billion capital requirement is based upon a CONSERVATIVE estimate under an ADVERSE stress scenario then it follows that the disposals will have had a substantial impact on the Bank's 2011 PCAR. Goodbodys have estimated this to be as high as €900 million before tax. Add this to the capital already raised and identified in my email of 14 October and it is clear that the Bank has already met its capital requirement and there can be no legitimate basis for a subordinated liabilities order being granted, under the Credit Institutions (Stabilisation) Act 2010, in respect of the former Bristol & West PIBS. It falls on the Bank to notify the market accordingly and to communicate this to the Central Bank and Finance Ministry.

You should also be aware that the Bank's continued statement that 'it does not exercise any control or influence over the actions of the Irish Minister for Finance in respect of actions he may take in respect of the bonds' is inaccurate. You are well aware that the Credit Institutions (Stabilisation) Act 2010 (CISA) only allows for a subordinated liabilities order to be granted where it is necessary for preserving or restoring the financial position of a credit institution and the Minister has consulted with the Governor of the Central Bank on this necessity. If the Bank has raised the capital it must inform the Governor of the Central Bank and the Minister for Finance and they will have no need or grounds to seek a subordinated liabilities order. Furthermore, CISA uniquely gives the credit institution concerned the power to appeal a subordinated liabilities order. Therefore, if one is sought when the Bank has already met its capital requirement it should use this power in order that the contractual rights of its creditors are not illegally violated.

Please do not continue to ignore the important issues I am raising and, this time, reply to say whether or not you are going to update the market on the Bank's capital position. I look forward to hearing from you.

Yours sincerely

Mark Taber
mark@fixedincomeinvestments.org.uk
Tel: 01761 220027

OPEN LETTER TO THE FINANCIAL SERVICES AUTHORITY - 26 June 2011

Dear Mr Turner & Mr Sants

I am writing on behalf of over 3,000 UK pensioners and individuals who have savings invested in the formers PIBS of Bristol & West Building Society and, more broadly, in the interests of millions of UK individuals who directly invest in retail bonds listed on the London Stock Exchange.

On Wednesday 29 June Albert Kempster, a 72 year old pensioner from Scotland, will be risking everything he has to appear in the High Court in London to attempt to protect the savings of the holders of these former PIBS from the actions of the Bank of Ireland which are grossly unfair and , in substance, both a breach of the terms and illegal under English Law. These actions are designed to render the former PIBS near worthless and what Albert is so bravely doing is what the FSA are failing to do as the sole UK financial regulator and listing authority.

Under these roles the FSA has statutory duties and objectives to promote market confidence and develop and enforce rules in order to provide an appropriate degree of protection for investors in securities listed on the UK markets.

The former PIBS were issued in 1991 in £1,000 certificated units. They were distributed via a placing agent to thousands of customers of UK building societies as a source of pension income. Thousands of the original investors, or their heirs, still hold the original certificates. The former PIBS were widely recommended in newspapers as a safe form of pension income.

Since issue the former PIBS have been listed on the London Stock Exchange (‘LSE’). In early 2010 the LSE established an Order Book for Retail Bonds (ORB) to promote retail bonds to private investors. A number of PIBS and former PIBS have been included on ORB and the former B&W PIBS are under consideration for inclusion. Since issue they have continued to be a retail held investment and the Bank of Ireland, which acquired Bristol & West in 1997, has been fully aware. This is evidenced by the fact that the former PIBS were the only issue of its Tier 2 debt, other than the retail held B&W Preference Shares, which the Bank of Ireland did not include in its institutional voluntary offer at substantially higher levels in 2010.

In 2007, with the approval of the FSA, the Bank of Ireland moved the former PIBS from Bristol & West to itself without seeking the consent of holders. It similarly varied the applicable law on winding up (the only remedy left for holders), regulation and failed to put in place a guarantee from Bristol & West on substitution as would appear to be required by the trust deed.

Despite not having been included in previous offers at higher levels the former PIBS have been included in the Bank of Ireland’s current highly coercive Liability Management Exercise on terms which are worse that those being offered to its institutional holders. In addition:

1 The proposed resolution is a breach of the terms of the bonds and, in substance, is illegal under English Law – the law under which the bonds are governed.

2 The repurchase by tender is in breach of the terms as the preferable equity option is not available to all holders alike.

3 The Bank of Ireland have not made provision for holders whose former PIBS are held in Crest to receive notice of or vote at the meeting where the amendment resolution is to be voted on.

4 The notice of the meeting is misleading as to the recent market price of the former PIBS.

5 Despite the Bank of Ireland being fully aware of the number and retail nature of holders it has scheduled a 15 minute meeting at a London solicitor’s office for the meeting. This is clearly inadequate, inappropriate and designed to prevent holders from being able to exercise their right to attend the meeting and vote on the amendment resolution.

6 The notice of meeting contained no telephone contact details for holders with queries about the meeting or voting. The only email address was one for Lucid (the Bank’s agent) and hundreds of emails sent to this email address by holders asking valid questions have gone unanswered.

The above actions and inactions on the part of the Bank of Ireland are a disgrace and not acceptable under any regulatory regime. Furthermore, the Bank of Ireland must have a Duty of Stewardship to holders of the former PIBS and its actions to deliberately fail to provide a fair and accessible meeting and vote on a matter of such economic significance must surely constitute a fraud under Section 4 Paragraph 4 of the Fraud Act 2006.

In addition it should be noted that, subsequent to its 2010 capital raising the bank announced and promoted on its website that it was strongly capitalised. It also publicised a Supplementary Prospectus for the former PIBS which indicated that they are senior to the ordinary and preference share capital of the Bank. The Bank allowed the former PIBS to continue to trade on the London Stock Exchange on this basis. Now the bank are seeking to effectively wipe out the former PIBS while leaving its supposedly junior ordinary and preference share capital intact as well as the preference shares of Bristol & West plc. This retrospective action infers that the Bank and its directors have allowed a false market to persist in the former PIBS for some considerable time. This must surely constitute Market Abuse under the Financial Services & Markets Act 2000.

Furthermore, the 2007 FSA approved Supplementary Prospectus for the former PIBS is misleading as to the nature of the issuer in the prospectus summary in giving the impression that it is a UK entity. The risk factors are also incomplete in view of events which materialised within a short period of time and there has to be a question of the accuracy and completeness of the prospectus as a whole.

It should also be noted that the Bank of Ireland has a UK banking license, a contract to provide retail banking services through the UK Post Office and takes advantage of the UK Financial Services Compensation Scheme.

In view of the information provided above it is hard to comprehend how the regulator of the UK’s sophisticated and leading financial services industry considers that it should be left to an individual pensioner to risk everything to try to protect the rights of holders. It should be noting that for all the posturing of the Irish Finance Minister about seeking to burn bondholders what we are talking about here is thousands of UK individuals and pensioners who invested their savings in a safe UK building society. Since then their former PIBS have been moved to a foreign bank without their consent and the UK regulation and remedy under the original PIBS terms is being denied them – again without their consent. It is the reckless actions of the directors of the Bank of Ireland which have led to the current position and these actions are a breach of a covenant given by the Bank to bondholders in the Trust Deed.

I therefore demand that the FSA finally takes action to protect the rights of the holders of the former Bristol & West PIBS. In addition the FSA must provide a commitment to undertake an urgent review of its regulation of issuers of retail bonds listed on the London Stock Exchange such that it ensure that:

1. Issuers of UK listed retail bonds act with integrity and fairness towards bondholders

2. Issuers of UK listed retails bonds comply with the terms of the bonds and trust deed

3. Issuers of UK listed retail bonds governed under English Law do not take acts which are illegal under English Law

4. The terms of UK listed retail bonds are written in plain English

5. Trustees of UK listed retail bonds are appointed and act in interests of bondholders

6. Meetings of holders of UK listed retail bonds are communicated to all beneficial holders and all beneficial holders are entitled to attend and vote without having to make special arrangements

I look forward to hearing from you as a matter of urgency.

Yours sincerely

Mark Taber

Email: mark@fixedincomeinvestments.org.uk

Tel: 01761 220027

For details of further correspondence with the FSA in respect of the Bonds see:

Bank of Ireland former B&W PIBS, the FSA and Retail Bonds

BANK OF IRELAND ANNOUNCEMENTS

3 June 2011 - Further details of proposed Liability Management Exercise and Offers announced:
 
 
8 June 2011 - Liability Management Exercise announced:
 
 
14 June 2011 - Bank of Ireland announce 2 week extension to Early Acceptance Deadline for the 13.375% Bonds as a result of our campaign:
 
 
23 June 2011 - Bank of Ireland announce results of 'Early Bird' acceptances:
 
 
28 June 2011 - Bank of Ireland Terminates Offer for 13.375% Bonds (GREAT NEWS !)
 
 
24 August 2011 - Bank of Ireland announces new Offer for 13.375% Bonds

19 September 2011 - Q&A In Respect of new Offer

JOIN CAMPAIGN CONTACT LIST OF BOI HOLDERS

A number of holders have contacted me and asked me to assist. We now have a very professional campaign is progress to help the thousands of UK individuals and pensioners affected by the disgraceful actions of the Bank of Ireland towards them. We have an email list for holders to which you can add yourself to at:
 
 
Updates and important communications will be sent by email and not posted on this web page. 
 
Dedicated campaign webiste at http://www.protect-my-savings.co.uk

MEDIA COVERAGE:


Irish Independent - June 29 - Bank of Ireland backs down on buyback plan
 
The Times - Money Section (Front Page) - 18 June 2011 (No link as pay site)
 
 
 
 
BBC Today - Business News - 16 June 2011: http://www.bbc.co.uk/podcasts/series/today
 
 
 
 
 
 
 
 
 

Financial Times - 10 June 2011: http://www.google.co.uk/url?sa=t&source=news&cd=1&ved=0CCoQqQIwAA&url=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2Fd4e55642-9396-11e0-922e-00144feab49a.html&ei=7ljzTf6zEsbNsgbw_JCyBg&usg=AFQjCNFyGJedvhxbM1Xv_Bab2P2j5lRSvg

USEFUL REFERENCES:

Trust Deed for Bank of Ireland 13.375% Subordinated Bonds:
 
 
Page 44 of Trust Deed (vital as it covers meetings and resolutions) which is missing from the above:
 
 
Supplemental Trust Deed for Bank of Ireland 13.375% Subordinated Bonds: 
 
 
Article by Ravi Suchak of Brown Rudnick covering the legal aspects of the coercive offers:
 
 
FSA note on its responsibility in relation to Bank of Ireland Former B&W PIBS:
 
 
Minutes of bondholders meeting - 7 July 2011:
 
 

USEFUL CONTACTS:

Bank of Ireland:
 Brian Kealy (Head of Capital Management) -  Brian.kealy@Boimail.com
 
Trustees - Law Debenture:
 Ellen Marchant - ellen.marchant@lawdeb.co.uk
 
Your Member of Parliament:
You can find your MP's email address at the following link:


Please be sure to include your postal address in your letter so that your MP can see that you are one of his / her constituents.

The Financial Services Authority (FSA):
Hector Sants (Chief Executive) - email: hector.sants@fsa.gov.uk

HM Treasury: 
Mark Hoban (Financial Secretary to the Treasury - email: fst.action@hmtreasury.gsi.gov.uk

Department of Business (responsible for the Post Office):
Vince Cable - email: mpst.cable@bis.gsi.gov.uk

Central Irish Bank:
Patrick Honohan (Governor) - email: patrick.honohan@centralbank.ie

Irish Finance Minister:
Michael Noonan - email: michael.noonan@finance.gov.ie

PRESS:

If you are a member fo the press who would like to know more about this story and the campaign to help the thousands of UK pensioners and individuals affected you can contact me at:
 
Tel: 01761 220027
 
 
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