The latest Investing Matters Podcast episode with London Stock Exchange Group's Chris Mayo has just been released. Listen here.
Would be a very positive development. Current Irish platforms have become excessive on pricing and on range of offering if you are not paying fees. Huge opening to claim market share, if priced correctly and offering trading (as opposed to portfolio) access. Likes of Barclays coming in refused to break ranks with the established houses and reprice to a starved Irish market!!!
Going back off course, Davy was 100pc owned by BIRG. Revisit there??? Give the current (tired??) management there an exit??
Some positives for BIRG coming out of a sale or wind down. Assets in the Republic totalled approx Eur30billion end 2019. With NAVs in banking at an all time low, a juicy buyout could make a lot of sense, financially and growing the Irish asset base in a flat market. Also possible to do a switch of BIRG UK assets for Ulster's Irish assets. Maybe time to ease out of the UK book that has dragged the SP down as the British move closer to armageddon.
Let's hope management are awake.
Cannot figure Ranger 4's comments on Blackrock. Like a recorder stuck on play!!
Blackrock have moved from a holding of approx 3% to current 8% in the past 6 month. This is not a shorting position, it is a conscious increase in a holding with a very clear intention in mind. The industry will consolidate or new bigger players will seek out undervalued assets for acquisition. There can be no doubt what Blackrock is doing and it is not selling....IT IS BUYING! Good that they are on board and taking up the slack in a weak market. Why would you knock them??
Not convinced on Johnmcc opinion on the Fed move to "tolerate inflation above 2%".
The Fed has effectively acknowledged is that their printing press actions will result in inflation moving above 2% shortly but have rejected standard economic theory that Fed Rates (short term) should be moved up to compensate this....quoting current day philosophy around economic conditions. Garbage in my opinion. What this stance translates too is a sharp steepening of the bond curve with duration bonds from 5 years out moving first back to real rates of return and thereafter premium levels. The Fed and other Central Banks can call their short rates and manipulate those as we have seen worldwide but they cannot control what they should and will pay for money out on the curve. They have off course attempted this in the past year or so (bit longer in some cases) but now even their balance sheets can take no more. Welcome back to the real world of paying for what you want and not stealing from investors. In the case of the US and the UK this will be a very painful experience as their balance sheets are already bankrupt and the world is waking up fast to not wanting to hold their worthless currencies. Could become very interesting in the next year.
Europe is not in the same hold. Its metrics are 100% better off than the US and the UK. The ECB will pull back on its accommodation going forward, dovetailing it with liquidity requirements in the Union. They do not have the same pressures on the yield curve as their needs are not deficit needs, purely accommodation needs. hence the moves in the Euro. There is no reason for the Euro not to climb back to 1.30/35 against the USD in the next 12 months. Sterling could have the single biggest problem within the G10. Leaving the EU, the highest deficit borrowing in its history and a right wing government. Why it believes that it can hold a 0.90 mark against the Euro is simply crazy and holders of Sterling will hurt going forward from here.
The banks will benefit, not battle from a steeper yield curve. Their world is made up of borrowing short and lending long. They need to just hold their balance sheets for a bit and let the bond curve fall off the cliff... then get back to business. BIRG will double in price inside of a year. Still bad but better than this dismal show at present.
Blackrock's movements are not significant given the size of their holding at 7.4%. No one can argue that they have been net accumulators in the past few months. Be happy that they have emerged as a core investor in BIRG.
Pop up of Norges Bank above 3% is interesting. Don't know them but guess they could have a passing interest!!!!
This is the first CoCo Bond issued by BIRG since the redemption of its Eur1billion issuance in 2018. That issuance was part of the restructuring that took place back in 2008 and the State was the only holder of the bond which carried a 10% coupon , a capital trigger of 5% and an entry equity price of 0,05c (before the reconsolidation of the SP). The new bond carries a coupon of 7.5%, a capital trigger of 7% and I am not sure(haven''t seen) the equity entry price. The difference this time is that the market took it willingly. Big difference from 2008.
Cost wise, one must be very conscious of a few things: One, the SP is currently priced to fail. The bank cannot raise capital via equity at a NAV of 0,2:1, a 80% discount to its par asset. Simply no option. Issuing the CoCo, this is recognised as Tier 1 capital, same as equity (becomes equity if the bank fails), makes sense. They are simply bulking up their equity ahead of the provisioning that will come in Q2+3. Two, the coupon is a deduction so as a cost of capital it is not 7.5%. Three, its a replacement bond for a same equity tier bond. This is totally different to some form of subordinated bond but higher than the "buy in bonds" that have been in vogue for the past 3-5 years.
This CoCo bond is a good deal for investors but maybe hang around for the provisioning disaster in Q2+3. The game is not over, just yet.
Blackrock are in accumulation stage, not acquisition stage. Unless I am mistaken they themselves cannot take over a bank, just a stake in a bank. In this scenario why would they chase the share price up? As long as they are happy with the underlying credit/solvency/liquidity of the bank then let the market in its current weak state feed the accumulation at the low end of the price range. Having chosen this range to accumulate it is likely that they will be happy to hold these levels going forward. One can judge what their appetite is based on this range holding. On balance one would not expect other fund holders to sell now but there remains the danger of a weak holder, such as that Scottish outfit still dumping. In that case Blackrock will back off and establish a new lower level. That's how the game is played. Consider yourselves fortunate that there is a genuine buyer around, because in this world not too many exist right now. Strange that our Irish players carry an inherent aversion to them!!
Decent comment from from Dept of Finance via Goodbody.
To offer a very rough but interesting perspective from BIRG's perspective consider the following:
Exercise in break up value
End 2019 Shareholders Value = E9625m
NPLs not provided for = E5000m
Net worth = E4625m
Current Market Cap = E1500m
Market discount to value = E3125m
At current SP the market is assuming a breakup discount of E3125m. This would comprise a multiple of negatives, but for this exercise one assumes further credit write offs/provisions. This will be the float which one will adjudicate on going forward as to whether the SP now is too steeply discounted or not. It is also the float on which any interested party might consider acquisition or not. In SP terms this is equivalent to E2.78. So the discount to maximum breakup value vs current SP is almost 2X. As clarity is sought/obtained in the months ahead (write off against the general property portfolio...already being discounted by 10% in the open market), household write offs, car finance write offs and off course SME write offs the fair SP can be debated. The absolute top end in a break up model is E4.18. We are at E1.40. What is possible, 2.00, 2.25?????
Enjoy the ride all!!!
The Davy Report referenced in part by ten4 , is a little short with the facts. Always better to read the full report than a clip from it.
Irish Bank subordinated debt traded down to 70% of face value during March, a 30% drop in value. Concerns about the payment of coupon on these bonds were a factor in the melt down, this coinciding with the ECB edit to banks to postpone/cancel dividend payments on shares. Once clarification was obtained on coupon payments being unaffected these bonds traded back up to levels around 87% of fave value. Expressed as an interest rate these bonds are now yielding between 7-9% return at these discounted levels. This is a reflection of the risk now being placed on Irish Banks.
On the equity front the drop in share prices over the same period were also roughly 30% down. The only difference with the bonds is that equity never came back. The pressures in equity have been commented on in earlier posts, a lot to do with liquidity being sought by weak institutional holders . Having said that we as shareholders must appreciate that in the pecking order we are at the bottom so ultimately not surprising that the worse performance, in this situation, should be in the shares.
Some interesting comment from various stakeholders.
Price wise we have exhausted the economic rationale for sellers. The only further selling will come from entities or individuals squeezed on liquidity. The upside in the SP will now outweigh the downside because the upside from any deal (in the next month or so) will be concluded at a more positive level from current price.
A merger with AIB (same as nationalisation as the State will end up a 50% shareholder in the total entity) would be done at a SP level of upto Eur2. BIRG is better provisioned while AIB has more surplus capital. Going forward such a merger would be a disaster. Two bad eggs never make a good egg!
Getting taken over by another European Bank (or maybe an American operation, but this I doubt) would be the best bet for us as shareholders. Someone like HSBC who have the UK interest and could forge a business in Ireland. The price of takeover for them would be cash light and earnings positive. Add to the inside track that they have with our current CEO, one of their own to lead it going forward.
The break up route is probably least likely FOR NOW, but will come into focus with in six months if nothing is done and the bank starts making the inevitable provisions. At that point the bank folds into a non performing operation and basically folds up within itself. That's what makes the first two options important time wise. The chatter about an ECB Bad Bank is a variation on this breakup angle. Probably a good idea but for now it talks about relieving existing BDPs not new ones that will come through. This implies that the existing platform is left to deal with the oncoming disaster. Not ideal.
If management have anything to offer now it will be to find a deal. Now is the time as they have failed to build a bank that could sustain over the past 3 years.
My feel is that you will see a slow move upward in SP back closer to the Eur2 level. Whether this draws in the Scots again (sadly they have a weak holding of 3% left) remains to be seen. On deal merit that is where a deal will be struck or we will be broken up.
Th einstruction by ECB to postpone dividends appears to be behind the decision by some institutional holders to exit their holdings, or part there off. The latest exit is by a small niche manager (the Fund is only got about GBP5m under management), based in Scotland, Baille Gifford. They had for whatever strange reason built a stake in BIRG of 4.53%.Starting on 3/4 when the share was in 1.75-85 range they sold their stake down to approx 3%. This is about 1.5m shares into a market that was already shell shocked and unresponsive. From most's perspective a dumb move but one can't know if they had liquidity issues or just a bad view on the bank going forward. Would guess that given their size they should never have accumulated that size exposure . That was definitely dumb, so dumb! Maybe don't put your money with them going forward!
The other sometime players, Blackrock (6% now), Gref(US based) (3%) and Capital (US based) have done very little/nothing in the past 6 months.
Share price wise the bank is priced to fail at these levels. This means that the market will not offer it access to fresh capital. Its capital buffers and access to seemingly unlimited access to liquidity from the ECB will now be played against the looming credit crunch, retail and SMBs. Time will tell but by all reports it has enough to give it a fighting chance for 2020.
At current valuations it has three options:
1) get nationalised. This is a viable option now given that the pandemic was not of its making and therefore it is a strategic, national entity.
2) get taken out by another European or US Bank. This would be the best solution for everyone involved.
3) break itself up, either by selling of its assets to a vulture fund or syndicating itself off to a NAMA type vehicle. At NAV below 0.2 the breakup value to a third party must be compelling, even with the provisions that we are sure to see in coming months.
Sad but true. In today's world I think current management are just not up to it all.
Never overlook liberation politics. It is inbred in human nature and is a powerful force. The history of SF in Irish politics is liberation politics and the points made by nuri123 do not look for logic. The momentum shift seen in NI for SF is/will flow into the Republic as they were the Republican force in the original liberation of the Republic. Now is their time, even though to many in the 30-40 yr age group their history is more slighted. If they don't make in a majority this time, they will be there next time and will have NI in their hands by then.
Early days but interesting we did not see the collapse in the BIRG SP over the past few days as the equity markets fell apart. Am guessing that its current price has discounted everything bar liquidation!!!
NAV now at 0.49, I assume a new low even from the dark days of 2007/08!!!
Noticed that HSBC came in with an aggressive buyback today, after their CEO announced his departure. Maybe BIRG would be wise to pay heed and pull the trigger on the buyback that was agreed at the AGM. Assets being purchased at 50% of what you are creating them at. Once in a lifetime experience, if you are a going concern!!!!
NAV at 4.40 is 0.5714! This is the approx level that a number of large UK Banks found a level in terms of SP.
Interesting that sizable activity picked up at these levels, starting after the close yesterday with a buy of 1.2m shares. We haven't seen these numbers for some time. Today a couple of decent sized trades already and SP remains better bid. Small mercies but guess SP at 5 is better than down here!
Sentiment on purely retail banks is very pessimistic at present with many saying that their demise is imminent, similar to high street retail! Who knows. One imagines that they will need to become far more streamlined and capable of servicing a greatly diverse marketplace. Still to price assets at a 43% discount makes little sense, given the creation of new assets at 100%. At worse one should look at a breakup, not dis similar to NAMA where the discounted assets are taken in (they ended up with an average portfolio around 60%) and then managed to a conclusion or sold off, closer to 100%. NAMA succeeded in doing this and will pay back the government well in excess of 100% of their capital. Maybe a few of these fellows need to come into BIRG and work their magic on the SP!
It will be interesting to see if we can break out of this downward spiral with a few decent buy orders.