BofI surprises markets with €625m risky bonds sale

Shares rose 6.7% as the bank secured orders for twice the level of bonds on offer

Bank of Ireland surprised financial markets on Thursday by setting out to raise €625 million through the sale of the riskiest form of bank debt.

The successful placement of so-called Additional Tier 1 notes is seen as a strong sign of confidence in the market surrounding the bank’s equity capital levels at a time when the coronavirus pandemic is forcing lenders to set aside money for an expected surge in bad loans. Incomes in the sector are also being squeezed by muted business activity.

The fresh Bank of Ireland notes, which rank just above equity in terms of recovery in the event of a company running in to financial trouble, were priced to carry an interest rate, or coupon of 7.5 per cent.

The bank secured orders for twice the level of bonds that were on offer, it said in a statement. Bank of Ireland shares rose 6.7 per cent to €1.42.

"We are pleased to have successfully concluded this transaction which – notwithstanding the challenging external backdrop – generated strong demand from international investors," said Sean Crowe, the bank's chief executive of its markets and treasury division.

“The successful execution of this transaction will further support the strong capital position of the group, which further positions Bank of Ireland to support the reboot of the Irish economy. The transaction is also a strong show of confidence from international investors towards the Irish economy and Irish banking sector as it deals with the Covid-19 pandemic.”

Loan losses

The 14 per cent State-owned lender revealed on Monday it had taken a €266 million loan impairment charge for the first quarter and expects loan losses to rise significantly as the year progresses and the economy grapples with the pandemic.

The bank also took a €120 million hit as market volatility affected customers’ life and pension portfolios and forced to mark down expected future fees. In addition, it took a €35 million charge as Covid-19 impacted the value of financial assets on its books. The lender posted a pre-tax loss of €241 million during the quarter.

Still, the bank said that even in an unexpected scenario of gross domestic product (GDP) falling by 10-12 per cent this year, its capital levels should bottom this year above regulatory requirements as most Covid-19 losses are accounted for in 2020.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times