BoI’s raising of €344m in bond sale a positive move, says Davy

BANK of Ireland’s raising of £300 million (€344m) in a three-year bond was described yesterday as apositive development by a leading Irish banking analyst.

But the three-year issue was achieved at a price given that it cost 4.4% above the normal rate, said Emer Lang of Davy Research.

Weekend reports suggested the bank is about to raise a further €50m to €70m for the sale of Bank of Ireland Asset Management to State Street, a move that will give a modest boost to the bank’s capital base.

Overall, Ms Lang said the cost of raising the £300m was “expensive” given its was priced at 440 basis points (bps) above the relevant three-year swap rate (plus the guarantee fee of over 1%).

Putting the price in some context, when Irish banks issued public debt under the extended loan guarantee in the January-April 2010 period, they typically paid up to 175bps over the benchmark swap rate, said Ms Lang.

“However, market conditions have deteriorated dramatically since then so the cash calls have been scarce,” she said.

“What issuance has taken place has consisted of small private deals”, she said.

Previously, Bank of Ireland has completed the raising of €2.9 billion in equity funding which was better than its target of €2.7bn.

That move brought the bank’s capital ratios into line with the recent and stricter capital ratios laid down by the financial regulator Mathew Elderfield.

Because of the high cost of borrowing currently imposed on the Government the move was seen as positive by Davy Research, which acts as broker to the bank.

Having successfully recapitalised, the bank was expected to be the first to tap the debt markets, though Ms Lang in her note comments that a major issue of debt has proved elusive.

Davy has changed its rating on the bank to neutral from the outperform tag it put on the bank at the end of June 2009. The shares were virtually unchanged at 60c in Dublin trading yesterday.