ANGLO Irish Bank is raising $125 million (£80 million) in preference share capital to back future expansion of its lending portfolio. The issue of noncumulative undated preference shares has been fully underwritten by Merrill Lynch.

Anglo would pay a dividend of 8.25 per cent per annum on the shares, 2.5 percentage points over the US interbank rate. Anglo's finance director, Mr Willie McAteer, said the funding would put capital in place to allow the bank to increase lending by up to £1.5 billion. The new funds rank as capital, raising the bank's Tier 1 capital ratio from 7.1 per cent to 11.9 per cent.

The 2.5 percentage point premium over markets interest rates reflects the fact that the funds rank as capital and are perpetual - redeemable at the option of the bank only, Mr McAteer said. "For perpetual funds the issue is quite finely priced," he suggested.

Anglo would pay fees of $3.9 million for the fundraising, or 3.15 per cent of the amount raised. Asked why Anglo decided to have the issue fully underwritten, Mr McAteer said the bank considered it "the right thing to do". Merrill Lynch would sell the shares into the retail market, he added.

The fund raising reflects "planning ahead" at Anglo, according to Mr McAteer. The bank has no specific acquisition plans but the fundraising means that there would be capital in place should a suitable opportunity arise, he said.

It removes market speculation that the bank would have to go to shareholders for funds through a right issue, he added. In addition, the new capital would back growth in lending over the next few years.