B of I creates cash reserve to repay State
BANK OF IRELAND has sought to reduce its share capital to create a bigger pool of cash from which to pay the Government dividends in February and later years on the State’s €1.8 billion preference share investment in the bank. It will enable the bank to repay the preference shares in full.
The only Irish lender to avoid State control, it brought a petition to the Commercial Court seeking to reduce its share capital by €3.92 billion to €1.97 billion. The reduction, approved by shareholders in June and by the Minister for Finance, will not affect the regulatory capital of the bank, Paul Sreenan SC said.
Bank of Ireland chief executive Richie Boucher said in an affidavit that the reserve will be treated as profits available for distribution and is intended to ensure the bank has sufficient reserves, after accounting for possible losses, to be able to pay dividends.
The bank sought the full €3.92 billion authorised under a measure approved by shareholders to ensure the bank had a buffer available to protect it from volatile markets.
The Government bailed out the bank in 2009 with a €3.5 billion investment by way of preference shares. The State converted almost €1.7 billion of this into equity shares in a rights issue to raise further capital in 2010. The bank was due to pay a coupon, or annual interest payment, on the shares to the State in February 2010 but instead paid in equity.
The State received a dividend of €214 million in February 2011 and €188 million last February. The next dividend is due on February 20th. Under the first State bailout of the bank, the lender must repay the €1.8 billion preference shares by March 31st, 2014 or else pay 125 per cent of this amount.