Kaplan - That was my original understanding as well. But I have seen quite a few people claiming that we own 25% of the banks so we will benefit from the uplift. If the banks can buy back the preference shares, so our warrants diappear?
Hi Sunny
I don't agree that the 8% is a particularly good return for Preference shares. It seems high, but it's very risky capital, with no potential upside.
AIB is paying 12.5% to ordinary punters for 2019 bonds
Maybe the warrant compensates for the difference?
brendan
And the taxpayer doesn't actually own any percentage of the banks until and unless the warrants are exercised.
One bit I am not clear on. Do the warrants cover a set percentage of shares, a monetary value or a set amount of shares?
These are pretty good warrants then.
Careful with the all, as I said above, the warrants have more value if the banks don't recover.If the banks recover, which we all hope that they will, then the warrants will be worthless as the banks will simply void them by paying off the Preference Loans.
Well, maybe. If the warrants convert the preference shares to equity, that will result in a balance sheet improvement for the banks as a liability has been converted to an asset. No?if the banks don't recover, they will be worthless anyway.
I agree. But it is too late for that.Straightforward share options would give the taxpayer much more upside.
I disagree - give them to the NTMA - a body that is, at least, a bit more transparent than NAMA is looking at the moment and that has the capabilities of managing equity stakes. Adding more stuff to NAMA is a bad idea. The chances of it being able to run the largest REIT in the world are already slim. Adding further complexity won't help.Give the options to NAMA.
This facility to cancel the warrants only exists until December this year and even at that is somewhat limited. The idea was to give the banks a bit of time to replace the prefs with privately sourced capital. In practical terms I don't think this is going to happen, therefore the Government is indeed sitting on some nice in the money warrants/options.Government Announcement of Prefs said:If the bank redeems up to €1.5bn of the State investment in New Preference Shares from privately sourced Core Tier 1 capital prior to 31 December 2009, then the Warrants will be reduced pro rata to that redemption to an amount representing not less than 15% of the ordinary shares of the bank.
Guys I think we are getting this a bit skewways.
This facility to cancel the warrants only exists until December this year and even at that is somewhat limited. The idea was to give the banks a bit of time to replace the prefs with privately sourced capital. In practical terms I don't think this is going to happen, therefore the Government is indeed sitting on some nice in the money warrants/options.
Form: On purchase of the New Preference Shares, the State will receive an option (the “Warrants”) to purchase 25% of the existing ordinary shares in each bank (calculated on a post-dilution basis). The State may exercise this option from the fifth to the tenth anniversary of the purchase of the New Preference Shares.Warrants
Early redemption: If the bank redeems up to €1.5bn in New Preference Shares from privately sourced Core Tier 1 capital prior to 31 December 2009, then the Warrants will be reduced pro rata to that redemption to an amount representing not less than 15% (the “Core Tranche”) of the existing ordinary shares of the bank.
Strike Price: The strike price of the Core Tranche of the Warrants shall be €0.975 for Allied Irish Banks and €0.52 for Bank of Ireland. The strike price of the balance of the Warrants granted to the State shall be €0.375 for Allied Irish Banks and €0.20 for Bank of Ireland.
Anti-dilution: Market standard anti-dilution protection will apply.
Voting: The State will vote no more than 50% of the votes associated with the ordinary shares which it receives through exercise of the Warrants. If the State transfers the ordinary shares to a non-State third party, full voting rights will be restored to these shares.
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