The aims of the proposals are two-fold — strengthening the bank’s capital balance in the aftermath of its relevant loans transferring to the National Asset Management Agency (NAMA) and meeting the end-of-year capital requirements put forward, for all of the NAMA-linked banks, by the financial regulator.
For Bank of Ireland to reach the desired 8% tier-1 capital ratio (from 5.3%), it must raise €2.7bn in fresh funds this year.
The new fundraising round will feature a share placing for institutional investors, aimed at raising €500 million, a €1.9bn rights issue and a debt-for-equity swap with existing bondholders, which could raise around €200m.
However, the key detail of the proposal, which will be formally voted on by the bank’s shareholders at an extraordinary general meeting on May 19, is that the bank is raising all the new capital from private investors, without the Government investing any more public money.
The Government’s real shareholding in Bank of Ireland will, however, increase to 36.5% as it converts €1.7bn of funds — invested in the bank in 2009, as preference shares — into ordinary shares.
Bank of Ireland, which intends to sell off its New Ireland Assurance, ICS Building Society and foreign currency exchange businesses, said the plan will provide it with “a strong capital foundation” to support future growth and build value for ordinary shareholders.
Governor Pat Molloy, called the plan “a significant turning point” for the bank and its shareholders.
“The substantial private sector interest in the capital raising, alongside the firm support provided by the 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.”
The bank also issued a trading update yesterday, stating that conditions in its core Irish and British markets remained “challenging ” during the first quarter of 2010. It added, however, that economic conditions have shown signs of stabilisation.
It reiterated its previous guidance that losses on the bank’s non-NAMA-bound loans have peaked. “Loan losses on these portfolios for the three-year period to March 31, 2011, remain within the loan loss guidance of €4.7bn.”