Government eyes divesting shares in BoI

It is believed that the Government is looking at divesting its preference shares in Bank of Ireland.

The Irish Examiner has learned that a number of corporate finance firms have been contacted by the Department of Finance with a view to a potential sale of the €1.8bn Bank of Ireland preference shares held by the State.

Following the sale on Jan 9 of the €1bn contingent capital notes the Government held in Bank of Ireland, Finance Minister Michael Noonan said that remaining stakes in the pillar banks could be sold in the future.

However, a department spokesperson said there was no currently no plans in place for the sale of the preference shares in Bank of Ireland.

Bank of Ireland also declined to comment.

There are €1.8bn of preference shares left in the bank, which carry a coupon of 10% per annum. The bank, which is 15% State-controlled, is due to pay a €180m dividend to the Government in March.

If the preference shares remain in State ownership beyond Mar 2014, their value increases 25% to €2.25bn.

However, Bank of Ireland has an option to buy these preference shares at par value next March. As it stands, these preference shares account for 3% of Bank of Ireland’s 13.9% core tier one capital. As long as these preference shares remain in State ownership, they will count as core tier one capital until 2017.

If the ownership of these preference shares moves to the private sector they will no longer count as core tier one equity. If the Government sells them to a third party in the private sector, Bank of Ireland could be forced to take measures to increase its core tier one equity capital in a bid to meet new Basel III capital requirements.

However, the Government might struggle to get a decent price for these preference shares if they are put up for sale, given that Bank of Ireland can redeem these shares at par next March. There is only one dividend payment of €180m before then.

There has been a considerable amount of movement in the financial sector over recent months. Both Bank of Ireland and AIB tapped the private markets through unguaranteed bonds in recent months.

The Government sold €1bn in contingent capital notes in January, making a €10m profit. This week, State-owned Irish Life was sold to Great-West Lifeco for €1.3bn.