BoI shares fall 6% as Government stake at 16%

BANK of Ireland shares plunged more than 6% yesterday, as the Government took control of a sixth of Ireland’s biggest bank by market value.

The Government was issued with €184 million shares in the bank yesterday,giving it a near 16% stake.

The shares will go into the national pension fund after the European Union stalled plans for a €250m cash dividend.

Finance Minister Brian Lenihan yesterday insisted that the new shareholding makes perfect sense. He said this was part of the Government’s plan to rescue the banks which includes a €3.5 billion investment last year.

In return for this investment, the bank was to pay an annual dividend of 8%, but the EU blocked banks in receipt of state aid from making such payments because they would amount to a direct transfer of money from the state to private investors. This meant the bank had to give the Government shares despite it hoping for cash.

At one stage yesterday, Bank of Ireland was down as much as 11% before closing at €1.18, a fall of 6.2%. AIB was also hit with its shares falling 2.8% to €1.08. Irish Life and Permanent, which is not involved in the NAMA scheme, managed to add 11.6c to €3.15.

Bank of Ireland has seen its share price plunge from €18.49 three years ago to €1.18.

While the state has a 15.7% stake in Bank of Ireland, under the bail-out rules the Government is still entitled to 25% of its shares in four years time.

According to Sebastian Orsi of Merrion Capital on one hand, the Government’s stake is a negative for existing shareholders, as it dilutes them.

“On the other hand, the issue price is at a premium to the current share price and it reduces the amount of capital that the bank will need, which might be seen as a positive,” he said.

Bank of Ireland said it is “actively exploring” ways to strengthen its capital, including raising funds privately, and it plans to conclude this after it transfers loans to NAMA.

NCB analyst Ciaran Callaghan said: “While this is a hiccup along Bank of Ireland’s road to remain privately owned, we expect the focus to remain on Bank of Ireland’s NAMA haircuts and the resulting capital deficit to be filled.”

Meanwhile, former chief executive of Bank of Ireland Mike Soden has said the bank would generate a considerable amount of money if it sold its payments system. The payments system is the infrastructure over which bank customers are charged for processing cheques and using bank cards.

Speaking on RTÉ, Mr Soden said the likelihood of either foreign or domestic investors taking a stake in the bank is remote, while the prospect remains of the Government’s shareholding getting bigger.

Bank of Ireland also said yesterday that it plans to sell two-year notes in a benchmark offering this week, according to a person familiar with the transaction.