Bank shares hit 2009 high after Nama move

SHARES IN the country’s two largest banks, Bank of Ireland and Allied Irish Banks (AIB), hit their highest levels this year after the Government outlined the scale of loans moving to the State’s toxic bank asset agency, Nama.

The two banks gained €1.16 billion in value as investors were buoyed that Nama’s writedown of their bad property loans would not lead to higher Government stakes and dilute the investments of existing shareholders.

Shares in AIB and Bank of Ireland rallied after the banks left the door open to raising capital privately by issuing new shares through rights issues or possibly by taking on strategic investors.

The combined market worth of the banks rose from €5.2 billion to €6.36 billion after the Government said it would buy loans with a total face value of €40 billion from the two institutions.

AIB surged 29.6 per cent, or 74 cent, to €3.37, the biggest gain in the bank’s share price since January, after the bank said it will sell loans with a face value of €24 billion to Nama, and that it plans to raise about €2 billion in capital.

Shares in Bank of Ireland, which will sell loans with a face value of €16 billion to Nama, rose 18 per cent, or 51 cent, to €3.38, valuing the bank at €3.4 billion – up from €2.9 billion a day earlier.

AIB’s shares hit their highest level since last November, pushing its market value to €3 billion from €2.3 billion at Wednesday’s close, while Bank of Ireland reached a level last posted almost a year ago.

The Government said on Wednesday, after the Irish stock market had closed, that it planned to pay €54 billion for bank loans with a face value of €77 billion to five lenders – Bank of Ireland, AIB, Anglo Irish Bank, the EBS and Irish Nationwide.

Minister for Finance Brian Lenihan said that this represented an average discount of 30 per cent across the five institutions, and that the discounted purchase of the loans would leave some institutions facing a capital shortage.

Mr Lenihan has said that the Government has not ruled out taking majority stakes in some institutions, but has given the guaranteed lenders an opportunity to raise additional capital from private investors in the first instance.

Bank of Ireland and AIB have said they expect the discounts or so-called “haircut” to be applied to loans moving to Nama to be lower than the 30 per cent average.

Analysts estimated the discount to be applied to Bank of Ireland’s loans will range from 18 to 24 per cent, though it is expected to fall below 20 per cent. AIB’s haircut is estimated to fall between 27 per cent and 29 per cent.

Bank of Ireland said it could raise further capital internally or “through access to capital markets”. It is expected to hold a rights issue before the end of the year to raise €1.5 billion, which would be used to reduce the State’s indirect stake from 25 per cent to 15 per cent before a December 31st deadline set by the Government under the bank’s €3.5 billion recapitalisation.

Richie Boucher, chief executive of Bank of Ireland, told analysts that any lingering uncertainty about Nama and the reporting of the bank’s financial results for the year end to September 31st in the first half of November made a rights issue difficult before the deadline, but he did not rule it out.

AIB said in a statement on Wednesday evening it planned to raise a further €2 billion in capital from existing shareholders by selling new shares in a rights issue, or from new investors.

The bank indicated it would also consider selling a stake to an outside investor, understood to be Canadian bank CIBC, which had made an approach. A sale of assets is also being mulled over by AIB as part of its plans to raise the capital over the next 12 to 18 months.