Double boost for Bank of Ireland

SHARES in Bank of Ireland inched higher yesterday on the back of a double boost for the company.

It received a rating upgrade from one of the country’s main stockbroking firms and it improved its balance sheet by buying back €1.26 billion worth of Tier 1 securities at a 50% discount.

The buyback will improve Bank of Ireland’s capital reserves and boost its balance sheet. The bank, last month, reported a pre-tax loss of €7 million for its latest financial year.

In a detailed research note, issued yesterday in which it upgraded Bank of Ireland from a “hold” recommendation to one of “buy”, Merrion Stockbrokers said the company’s better than expected capital position and the general improvement in capital markets have also further reduced the risk of the bank being nationalised by the Government.

“We believe that Bank of Ireland now has potential access to outside capital and could raise common equity on a phased basis to redeem the Government preferred shares; a positive in our view.

“With a cleaner balance sheet post-NAMA and front-loading of loan losses, the bank’s earnings potential is becoming more attractive,” said Merrion’s banking analyst, Sebastian Orsi.

“The recent improvement in market risk appetite, combined with Bank of Ireland’s better than expected capital position and rising share price, increases its potential to access non-Government capital. We expect it to raise private capital to replace the €3.5bn of Government preferred shares over time.

“Replacing the Government shares would reduce dilution, have a positive P&L impact and improve the quality of the capital base, taking the equity Tier 1 capital ratio over 8%. It would also be a positive outcome for the Government,” he added.

Bank of Ireland’s share price finished yesterday at €1.81, a gain of 4c.