Deal will increase Government stake to 36.5%


THE GOVERNMENT’S stake in Bank of Ireland will increase to 36.5 per cent as a result of a deal with the bank that will help it boost its reserves to safer levels.

Bank of Ireland intends to raise €3.4 billion in funds in order to meet new capital requirements laid out by the Financial Regulator and recover from the financial crisis.

Minister for Finance Brian Lenihan has described Bank of Ireland, which is currently 16 per cent Government-owned, as “the first of our financial institutions to emerge from the banking crisis”.

Under part of the fundraising, the Government will enter into a transaction with Bank of Ireland via the National Pension Reserve Fund (NPRF). The bank will raise €1 billion from the conversion to ordinary shares of part of the Government’s €3.5 billion holding in preference shares.

The bulk of the fundraising will come from private sources. The bank’s proposals include the issue of €500 million in new shares to private investors and the opportunity for existing shareholders to subscribe to new shares through a rights issue of up to €1.885 billion.

The private placement, which closed yesterday, was three times oversubscribed, according to dealers, indicating the bank has not had any difficulty in attracting investors despite market turmoil elsewhere in the euro zone.

As well as satisfying more stringent capital requirements, the bank needs to raise funds to cover losses on the bad loans that have transferred to the National Asset Management Agency (Nama).

In a move that indicates the bank’s desire to wean itself off State support, the capital-raising exercise includes a plan by the bank to spend €491 million buying back the Government warrant entitlements, which would have allowed the State to take a 22 per cent stake in the bank in four years’ time.

Buying back the warrants reduces the prospect of the State having to take further ownership in future and the uncertainty surrounding possible further dilution in the value of shares that such a move would entail.

After other costs are taken into account, the bank will raise a net €2.8 billion. This will allow it to meet the regulator’s stress tests. The bank said it expected to maintain its equity tier one ratio – the measure of cash and profit reserves set aside to cover losses – at a minimum of 7 per cent.

Announcing its capital-raising plans yesterday, Bank of Ireland said the measures would provide “a strong capital foundation to support the bank’s future growth” and assist in its “prudent disengagement from State guarantees”.

Under the next stage of its plan, the bank will generate additional funds through a debt-for-equity exchange offer, which was also launched yesterday.

Further details of the rights issue, including the level of discount being applied to the shares offered to shareholders, will be announced on May 17th. Shareholders who do not want to participate in the rights issue have the option to sell their rights to other shareholders.

The bank will hold an extraordinary general court (egc) on May 19th. Letters indicating the provisional allotment of shares under the rights issue will also be sent to shareholders on that date.

The timetable for raising the capital it needs stretches until mid-June, when there will be an announcement of the take-up of the rights issue and the final results of the debt exchange offer.

The converted ordinary stock will be issued on September 10th.

Following the transaction, the State will still hold around €1.78 billion preference shares. These will now earn a higher coupon rate of 10.25 per cent, up from 8 per cent, increasing the return on the remaining preference shares. The State will also make a €491 million profit on its warrants in the bank and receive some €51 million in fees for conducting the deal.

Mr Lenihan said the State’s transaction with Bank of Ireland represented “a good deal for the taxpayer”. The Government maintained that the real financial benefit would be that the recapitalised bank would “now be in a position to provide credit to Irish businesses and households”.

However, Fine Gael’s Richard Bruton said the Government was overpaying for Bank of Ireland shares by €156 million, because the bank was not offering the same discount to the State as it was to private investors.


€500 million will be raised by placing 326,797,386 new shares with investment institutions at €1.53 per share.

€1.036 billion will be raised by placing 575,555,556 new shares with the National Pension Reserve Fund (NPRF) at €1.80 per share.

Consideration will be 1.036 billion preference shares of €1 each in Bank of Ireland held by the NPRF.

€1.2 billion will be raised by rights issue to shareholders.

The price of the shares and number of shares will be determined by May 17th.

The National Pension Reserve Fund will participate in the rights issue in respect of its shares in Bank of Ireland, taking up €685 million worth of stock.

Holders of senior Bank of Ireland debt will be able to exchange the debt at a discount for shares or for cash

The National Pension Reserve Fund will receive €491 million in return for cancelling warrants to buy additional Bank of Ireland shares.