BoI offer could net €400m gain

BANK of Ireland yesterday announced that it is to make an exchange offer for up to €1.5bn of its outstanding Lower Tier 2 securities with a nominal value equivalent to €3.1 billion.

The move is designed to strengthen the bank’s capital and analysts suggest the amount raised could be as high as €700m with a minimum gain of €400m the likely outcome.

Well placed sources said the final tally will be dictated by the appetite for the offer.

The move follows fresh instructions from the Financial Regulator to bring the Tier 1 Capital Ratios of the banks in Ireland up to 12%.

That strengthening of the Tier 1 rule has put pressure on the bank to raise a further €2.2bn at a time when it thought it was fully funded to meet the new tougher regulatory guidelines.

The bank plans to offer bondholders a new 13 month Government guaranteed senior bonds at 6.75% which are due in 2012.

The tenders are to be made at between 46% and 57.5% of their face value, which is more than their current market price.

Brian Kealy, head of capital management, BOI, said the bank has the option to buy back more than €1.5bn of the existing bonds if it chooses. The exchange could raise up to €400m in fresh capital for the bank.

While the bonds are not in the high risk subordinated debt category they are a tier below the senior bond category. Their values have been hit by the turbulence in the money markets for both government and commercial debt. The gains made by the bond exchanges will go to boost its the bank’s capital base.