B of I approves Anglo deal
SHAREHOLDERS IN Bank of Ireland have approved overwhelmingly a transaction to allow the Government pay a €3.1 billion promissory note for the former Anglo Irish Bank with a bond instead of cash.
According to the bank, which will earn €38.7 million from the deal, the structure of it will give the State “greater flexibility” in accessing the capital markets, which, in turn, will also help Bank of Ireland raise funds. Yesterday’s approval by 99.98 per cent of shareholders concludes a process dating back to March when the Government, which has a 15.1 per cent stake in Bank of Ireland, asked it to enter into a repurchase, or repo, transaction with Irish Banking Resolution Corp (IBRC).
The Government then borrowed €3.1 billion in an existing 13-year bond to finance its annual bill for the cost of bailing-out Anglo, which it then issued to IBRC. Pending yesterday’s vote, the IBRC swapped these bonds for cash with the National Treasury Management Agency (NTMA) for a period of up to 90 days. Bank of Ireland is now expected to complete the deal with IBRC following stockholder approval.
Speaking at the tightly guarded egm held in Dún Laoghaire yesterday, attended by about 100 shareholders, bank chairman Pat Molloy said the transaction should not have any “adverse impact” on the capital ratios or the liquidity ratio of the bank.
However, responding to queries from shareholders regarding the certainty of the transaction, chief executive Richie Boucher was keen to assert that it was not a “riskless transaction”. “We get paid a margin because there is a risk,” he said. According to the circular distributed ahead of the vote, some of the risks associated with the deal include: a default in relation to IBRC; the ECB deciding that the bonds no longer comprise eligible assets for the purposes of the its open market operations; a further downgrade in the credit rating of the Government debt, which could in turn have an effect on the value of bonds; and an unexpected termination or non-renewal of the Eligible Liabilities Guarantee Scheme.
“We believe the balance between risk and reward is acceptable,” Mr Molloy noted.
Bank of Ireland will finance the transaction through standard ECB open market operations and will earn a margin of 135 basis points (1.35 percentage points) over its cost of accessing funds from the ECB for doing so.
The bank is expected to earn €3.2 million each month that the facility is used, or €38.7 million over the 12 months the facility is expected to be in use. Mr Molloy said such a return was “appropriate” for such a transaction.
The bank’s “reasonable and vouched costs and expenses”, such as professional fees, incurred in connection with the transaction will also be reimbursed by IBRC. All IBRC’s payment obligations are guaranteed by the Minister for Finance and it will buy the bonds back from Bank of Ireland after a year.
A small number of protesters were present outside the meeting.