EU leaves State no choice but to increase stake in BoI

A 'coupon stopper' decree plunges banking deeper into State hands contrary to original plans, writes UNA McCAFFREY

WHEN JOHN Corrigan was addressing the Public Accounts Committee last week, he was clearly still hopeful that the State would be able to avoid taking an ordinary shareholding in Bank of Ireland at this stage.

The National Treasury Management Agency chief executive told the committee that cash was “preferable” to shares and that it was better to be “patient”.

In the event, patience has proved meaningless, with regulations leaving the State with no choice but to accept a 15.7 per cent ordinary shareholding in Bank of Ireland from Monday. This goes directly against the stated intention of the Government when it announced its €7 billion recapitalisation scheme for AIB and Bank of Ireland almost exactly a year ago.

“The State does not intend to take control of these banks,” read a statement at the time, although this was seen by many as being overly optimistic.

While 15.7 per cent admittedly does not equate to control, the prospect of creeping majority ownership now becomes a touch more real. Already, there is the possibility that the State will convert some or all of its 25 per cent preference stake in the bank into ordinary shares in four years’ time.

And in the nearer term, a €2.5 billion Bank of Ireland fund-raising is likely to see the State increasing its position further.

Last night, the bank said it was “actively exploring a range of options” on funding and wanted the State’s investment to be at a level that would facilitate “possible access to private capital sources”.

Market-watchers say the search for capital could take a number of forms, including a rights issue underwritten by the State, a debt-for-equity swap and a conversion of some of the Government’s 25 per cent stake into ordinary shares.

It is thus more likely than not that more ordinary shares will come the State’s way before too long, and that’s without even considering an additional injection of taxpayers’ funds.

Bank of Ireland is perhaps unlucky to be the first of the two banks to see a State dividend payment fall due while the European Commission’s “coupon stopper” is in place.

AIB’s first €280 million (Bank of Ireland owes less because the dividend does not relate to a full year) falls due in May, by which point all involved will hope to have seen a removal of the commission’s embargo.

Nothing is certain but the likelihood is the banks’ plans will be approved by the EU executive within weeks, just a little too late for Bank of Ireland.

For now, all involved can consider the irony attached to the State’s first ordinary shareholding in the banks coming as a result of an initiative actively designed to avoid full State ownership.