Bank of Ireland shares fall further 11%

BANK OF Ireland shares fell 11 per cent yesterday, continuing the stock’s decline on the market as the Government is poised to take control of the bank in a third bailout to raise its capital levels to international standards.

The Government’s ownership of the bank may rise to almost 80 per cent as part of a €85 billion rescue by the EU and IMF to “over-capitalise” the Irish lenders to ease market fears about their viability.

The bank may need €3.2 billion of additional capital, while Allied Irish Banks could require substantially more in a move that will push both further into State ownership.

The Government could be left with a stake of 79 per cent of Bank of Ireland, according to analyst Emer Lang at Davy stockbrokers.

AIB may end up with a 99.9 per cent Government share, leaving a small amount of shares listed to enable the State to sell down its shareholding over time.

Bank of Ireland is poised to become the fifth bank to fall into State control under the plan that will lead to almost a full nationalisation of the banking system.

Irish Life and Permanent is the only bank not to receive a State bailout because it avoided lending to developers and has a profitable, well-capitalised life business.

Shares in Bank of Ireland fell 33 per cent early yesterday before recovering ground to close 11 per cent, or 3 cent, lower at 26.6 cent, valuing the bank at €1.4 billion.

AIB, which was already facing State ownership of 94 per cent, fell 22 per cent in early trading before finishing the day 3per cent, or 1 cent, higher at 34 cent, valuing it at €367 million.

The Government will seek to raise core tier one capital ratios – a measure of a lender’s ability to absorb losses – at the banks to the international norms of 12 per cent drawing from the rescue fund.

Should the banks incur further losses they can draw on a contingency fund as part of the €85 billion to keep their capital ratios above 10.5 per cent.

Some €35 billion is expected to be earmarked for bailing out the banks under the €85 billion EU-IMF loans, with the remainder to be used to allow the Government to stay out of the bond market for two to three years.

The value of Bank of Ireland’s subordinated bond due in 2020 fell to 53 cent in the euro from 60 cent in the euro a day earlier as investors fear they may be forced to share the bailout costs.

Subordinated debt at AIB remained broadly unchanged.

The Government is seeking to share a “significant” burden of the losses at the fully nationalised lenders, Anglo Irish Bank and Irish Nationwide Building Society, with subordinated bondholders.

The EU and IMF have agreed to provide assistance to the Irish banks and give them access to cheaper funding. Billions could be used immediately to recapitalise the banks, but most will be a backstop should losses rise further.