BoI shares fall due to concerns over rights issue

BANK of Ireland shares fell almost 7% in early trading yesterday after the bank announced details of a €1.1 billion rights issue late on Friday to raise capital to shore up its balance sheet after a surge of bad debts caused by collapse of the property market.

By noon, the bank’s share price was down by over 10% to €1.43 but then started to recover as the market had time to digest the offer.

BoI was still among the big losers yesterday, falling 5.2% to €1.46 on the day.

Late on Friday, it announced plans for a 3 for 2 rights offer at a price of 55 cents for each new share, representing a discount of 64% on the closing price on Friday of €1.53.

Overall the bank is raising a combined €3.56bn, including expenses, half from the private sector and half from the state.

This latest funding exercise well generate €3.4bn in fresh equity for the bank and boost its Tier 1 ratio to 85 ahead of the end of year deadline set by the financial regulator.

Existing private shareholders before the placing to private investors and to the state, own 66% of the equity in the bank.

If they take up their rights issue, they will own 48%, while the state will see its holding move from 34% to 36% and private institutions 16%.

Commenting yesterday Bloxham Stockbrokers said that “as we expected” the price was at the high end of the outlined discount range and was pitched to reflect the difficulties in the market place. The issue prices the deal “to go,” said Kevin McConnell, one of the analysts with Bloxham.

BoI has fallen nearly 11% in recent weeks due in part to concerns over the Greek debt crisis.

Finance Minister, Brian Lenihan, said in March that Ireland’s banks needed €31bn in capital after “appalling” lending decisions left the banks on the brink of collapse.

The placing has been fully underwritten. Shares not taken up will be sold off to other buyers including institutional investors.

Meanwhile, the bank is precluded from paying a dividend under EU guidelines until September 30, 2012, or until the government’s preference shares are fully redeemed or no longer owned by the state.

European shares ended mixed, as the euro pulled back from four-year lows amid continuing concerns over eurozone economies.

Overall, shares in Dublin were off by 0.9%. AIB was down over 3% to €1.20 while continuing disruption of flights saw Aer Lingus close over 2.7% on the day to close at 71c.

Ryanair lost more than 3.7% to end up at €3.22.

Among the many gains was Independent News & Media, which closed up 6.1% at 12c.

London’s FTSE fell to 5,262.54, with Barclays Bank down 1.4% to £304.70 at close. Germany’s Dax, rose 0.2%. In Paris, the CAC fell 0.5%.