Bank of Ireland egm on €3.1bn bond deal

BANK OF Ireland will hold an extraordinary meeting of shareholders on June 18th to approve its role in the deal to delay the State’s €3.1 billion annual cash payout on the bill for defunct lenders Anglo Irish Bank and Irish Nationwide.

The Government borrowed more debt on a 13-year bond last month and issued the bonds to Irish Bank Resolution Corporation, Anglo’s new name, to cover this year’s €3.1 billion instalment on the State IOUs covering the bailout costs of the two lenders.

The plan involved IBRC swapping the bonds for cash with Bank of Ireland, but pending the approval of shareholders the swap was completed on a temporary basis with the National Asset Management Agency for up to 90 days.

Bank of Ireland issued a circular to shareholders yesterday calling the meeting.

The bank said it expects to make a profit of €38.7 million on the transaction, based on an interest margin of 1.35 per cent. It plans to swap the bonds for cash at the European Central Bank.

IBRC will buy back the bonds from the bank after a year.

Bank of Ireland said the bonds were worth €2.99 billion last Monday. The transaction will have no impact on the bank capital; its loans to other banks would increase by €2.8 billion but would be offset by an increase of €2.8 billion in its deposits from banks.

The bank said the transaction could give the State “greater flexibility” in accessing the markets.

“The transaction will benefit the State in its management of the overall State finances and is therefore anticipated to be of benefit to the overall Irish economy, and in turn the bank,” it told shareholders in the circular.

Asked about the time taken to call the meeting, a spokesman for the bank said the circular had to be approved by the listing authorities at the Irish and London stock exchanges. Pat Molloy, the bank’s chairman, said last month that its board conditionally approved involvement in the swap pending the approval of shareholders.

Analyst Stephen Lyons at stockbroking firm Davy said the delay in calling the meeting had been “unhelpful”.

The €3.1 billion cash payment to IBRC was due under the terms of the promissory notes or IOUs issued by the State to cover €31 billion of the €35 billion cost of Anglo and Irish Nationwide by way of annual payments until 2031.

Nama’s short-term facility with IBRC was due to mature yesterday, with an option for a maximum maturity of 90 days, but the agency extended the maturity date until June 20th earlier this week.

The Government issued the debt to IBRC instead of cash as negotiations continue with the ECB to find a long-term alternative to the notes, coinciding with a possible wider restructuring of the Government-controlled banks.