# Government's stake in AIB and BOI



## Shawady (22 Feb 2010)

Can someone clarify what the position is regards the government's stake in BOI and AIB?

Is it the case that the government gave each bank €3.5 billion on the basis that if this is not paid back in 4 years, then it takes a 25% stake in the bank.
Also, this €250 million worth of shares (16%) has now been taken instead of cash. How does that work? Is it volume of shares that is equvilant to value of €250 million at todays market price and that these can go up or down over time, so we may end up getting less than 250 million back?


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## Sunny (22 Feb 2010)

The amount of shares granted is equivalent to €250m based on the average share price over the past 30 days.


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## Shawady (22 Feb 2010)

Sunny said:


> The amount of shares granted is equivalent to €250m based on the average share price over the past 30 days.


 
What about the 25% stake? I initially thought the government had taken a 25% stake in each bank but reading over the weekend it appears that it has the option of taking a stake in the event that the bank cannot pay back €3.5 billion in a few years time. Is this the case?


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## Sunny (22 Feb 2010)

Shawady said:


> What about the 25% stake? I initially thought the government had taken a 25% stake in each bank but reading over the weekend it appears that it has the option of taking a stake in the event that the bank cannot pay back €3.5 billion in a few years time. Is this the case?


 
Yeah its just an option. They can excerise the option at anytime between year 5 and 10  from the date of the investment. I think the strike price is at about 60c per share or something.


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## Shawady (22 Feb 2010)

Sunny said:


> Yeah its just an option. They can excerise the option at anytime between year 5 and 10 from the date of the investment. I think the strike price is at about 60c per share or something.


 
Thanks for clarification.
I just wonder that they are very relucant to go down the road of nationalisation and if they have to do it eventually , would they have been better off biting the bullet at the start.


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## Sunny (22 Feb 2010)

I can why they didn't but it is getting very messy at this stage. To be honest, the amount of time all this is taking is amazing. I can understand NAMA to an extent from a logistical point of view but I don't understand why the banks are still waiting for EU approval for their businss plans. By European standards, they are not big or complicated.


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## Protocol (22 Feb 2010)

The 3.5bn injections were to purchase preference shares, not ordinary shares.

The pref shares have an 8% coupon.

If the 8% is not paid in cash, then it may be paid in ord shares.


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## budapest (22 Feb 2010)

Yes, there is a major risk involved.  What has effectively happened within just one day of trading is that the shares, which were 'bought' at EUR1.36 are now worth EUR1.18 or less.  If the government were to sell its stake now for even close to this price, then it would make an instant loss of over 36M Euro.  (The 250M would now be worth around 214M).


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## Sunny (23 Feb 2010)

And if I sold my house today, I would make a loss but I am not going to do that. The transaction is messy as both sides didn't want to do it but as Prof Honohan pointed out, BOI needed capital anyway so now it just means they will need €250m less


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## shanegl (23 Feb 2010)

The government are never going to sell these shares. They have effectively foregone the 250m in cash.


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## Slim (23 Feb 2010)

shanegl said:


> The government are never going to sell these shares. They have effectively foregone the 250m in cash.


 
Hopefully NTMA will sell them in a few years, at a profit! It will take a lot longer for me to make a profit on mine!!!


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## budapest (23 Feb 2010)

'hopefully' is the correct word.  I can't remember anyone giving the government the right to do this on any Irish person's behalf.  At the moment they are in far too deep and have to keep on digging.  If only they had never started this process, everyone would be so much better off.


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## shanegl (24 Feb 2010)

Slim said:


> Hopefully NTMA will sell them in a few years, at a profit! It will take a lot longer for me to make a profit on mine!!!



Well they've already sunk a few billion into BOI, and plenty more needed to nationalise them and recapitalise soon enough. Never mind the enormous cost of NAMA.

Don't see much upside on this latest investment.


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