Bank of Ireland seeks to raise €3.4bn

Bank of Ireland seeks to raise €3.4bn
By John O’Doherty
Copyright The Financial Times Limited 2010
Published: April 26 2010 09:21 | Last updated: April 26 2010 09:21
http://www.ft.com/cms/s/0/8ec4c4a0-50fc-11df-aceb-00144feab49a.html


Bank of Ireland announced plans on Monday to raise up to €3.4bn ($4.6bn, £2.9bn) in a combination of a placing, a rights issue, and a debt-for-equity conversion, as the Irish bank aims to plug its capital shortfall, just one week after announcing a radical operational restructuring.

If the capital raising is successful, the group’s tier 1 equity ratio will rise by about €2.8bn, from 5.3 per cent to 8 per cent. The shareholding of the Irish state in the group will also rise from 34 per cent to 36 per cent.

“Today’s announcement marks a significant turning point for Bank of Ireland and its stockholders,” said Patrick Molloy.

“The substantial private sector interest in the capital raising alongside the firm support provided by the [Irish] state demonstrate the inherent strength of the bank and confidence in its future. We believe the completion of these proposals will provide strong foundations upon which to build stockholder value.”

Shares in Bank of Ireland fell 3.3 per cent, or 6 cents, to €1.74 in early trading.

The bank will raise €500m from a placing with institutions, and €1.04bn from a placing with the Irish state, which already holds a 34 per cent stake in the bank.

In addition, the group hopes to raise €1.9bn in a rights issue. About 90 per cent of the rights issue will be funded via a debt-to-equity conversion, in which the Irish state will convert roughly €700m of its bank bonds to equity. In total, the Irish government will contribute €1.7bn to the capital raising.

Less than two weeks ago Bank of Ireland laid out restructuring plans that will see it sell off its pensions and life assurance unit, its asset management arm and other smaller businesses in a bid to win approval from the European Commission for its government-backed restructuring plan.

Ireland’s two largest banks, Bank of Ireland and AIB, have both been hit by a massive decline in the value of their loan portfolios, denting their capital ratios, and requiring emergency cash injections from the Irish taxpayer.

The country’s financial regulator estimates the two banks need to raise €10bn, with AIB in far more serious need of capital, requiring €7.4bn by the end of the year. It is expected that this could mean the Irish government ends up with a 70 per cent stake in AIB.

The two banks have been helped by the creation of the National Asset Management Agency, Ireland’s “bad bank”, to which they can transfer their distressed loans at a discount. Bank of Ireland has already transferred €1.2bn of loans to Nama, and the group expects to transfer €12.2bn of loans in total.

The first €16bn tranche of loans transferred to Nama earlier this month were at a 47 per cent discount to face value, although it is estimated that only 30 per cent of the loans in the Nama portfolio are performing at present.