Anglo could raise €860m in buyback

ANGLO IRISH BANK could raise €860 million core capital by buying back loan bonds at a discount, according to analysts at Bank of America Merrill Lynch.

Anglo Irish Bank Corp’s lower tier 2 notes are undervalued because the bank is likely to redeem the debt at a premium, Bank of America Merrill Lynch analysts said.

Investors should buy Anglo Irish’s lower tier 2 bonds maturing in June 2016 and June 2017, according to a Bank of America note to clients.

The notes, currently trading at about 41% of face value, are worth between 54 and 58%, according to the report.

Banks that buy back debt at a discount to face value generate a capital gain they can use to bolster their capital ratios. Anglo Irish could raise €860 million of core capital by tendering for all its lower tier 2 bonds at half of face value, assuming all offers were accepted, Bank of America analysts estimate.

“We believe that Anglo Irish will undertake liability management in the coming months that will involve its outstanding lower tier 2 securities,” analysts Richard Thomas and Samantha Horn wrote.

“It needs the capital and the bonds are trading at a heavy discount.”

Anglo Irish, nationalised in 2009, may need €18.3 billion in new capital to prevent the obliteration of what was once Ireland’s third-biggest lender, Finance Minister Brian Lenihan said last month.

Anglo Irish has €2.38bn of lower tier 2 notes outstanding, according to the report. The securities, which banks use to cushion against loan losses, are the most senior type of regulatory capital instruments.