B of I says it can recapitalise

RESULTS:BANK OF Ireland said yesterday it was confident that it can raise the €2.7 billion it needs to recapitalise the bank, as it announced a pretax loss of €1.8 billion for the nine months to the end of December 2009.

The bank said the Government’s interest in the company would remain a minority stake by the end of the capital-raising process.

Impairment charges on customer loans at the bank increased substantially to €4 billion during the period, of which €2.2 billion relates to assets expected to transfer to the National Asset Management Agency (Nama).

Bank of Ireland chief executive Richie Boucher said the bank’s overall loan losses had peaked, but not in the case of impairments on its residential mortgages, which continue to rise.

The bank said it planned to increase mortgage interest rates in the near future. It is restructuring the repayments on 700 mortgages a month, it added, while Government measures to force the banks to lend more to small businesses will result in a 30 per cent increase in its lending to the sector, Mr Boucher said.

Bank of Ireland’s share price surged 24 per cent on the Iseq index yesterday, closing at €1.60, as investors found comfort in the bank’s assurances of its ability to raise funds. Its plan to raise capital comprises three elements: a private placement or rights issue; the conversion of part of the €3.5 billion in preference shares held by the Government to ordinary shares; and the carrying out of a debt exchange.

The rough breakdown of the capital generated from each may be €1 billion from the State, €1 billion from a rights issue or private investors, and €700 million on the debt swap.

This plan, if successful, would bring the bank’s reserves to the Financial Regulator’s core equity capital target of 7 per cent. The bank also said it would try to repay the Government’s warrants, which allow the holder to take a 22 per cent stake in four years’ time. This would reduce the State’s further potential ownership of the bank.

Mr Boucher said the bank would be ready to announce its capital-raising plan as soon as the European Commission approves the bank’s restructuring plan.

Brussels is expected to sign off on the plan in the coming weeks.

“Any Government participation would be required to be on purely commercial terms,” Mr Boucher said. The bank does not expect to require the Government to underwrite the rights issue.

The Government already holds a 15.7 per cent stake in Bank of Ireland. It is likely this will rise to just under 40 per cent when the recapitalisation is completed.

It had been earlier flagged that Bank of Ireland loans with an original value of €16 billion were destined for Nama, but the figure announced on Tuesday was €12 billion. Mr Boucher said some €3 billion would stay on the books of the bank. Of the remaining €1 billion, some loans had been repaid and others sold on to third parties. The discount that will apply to the full €12 billion will be similar to the 35 per cent haircut imposed on the initial tranche, Mr Boucher said. The actual loss will only be known on completion of the due diligence on each loan.

“Based on the first tranche, we have not had any loans discounted due to documentation issues,” he said. Referring to the debts of the other Nama banks, which exceed those of Bank of Ireland, Mr Boucher said the level of debt “is pretty big, it’s pretty frightening”.