State set for 70% bank stake

THE state is set to take a majority shareholding — potentially up to 70% — in Bank of Ireland later this month, as it looks increasingly unlikely that all existing shareholders will take part in its latest rights issue.

The bank’s full recapitalisation plan — of which the rights issue comprises a large element — was formally approved by stockholders yesterday, despite a number of retail shareholders attacking the plan at an extraordinary general meeting in Dublin.

Bank of Ireland said last Friday that it was aiming to raise €1.91 billion from the rights issue — which is being underwritten by the state. If all existing shareholders take up their rights, the state’s 36% stake in the bank would be reduced to 29.2%.

However, if all shareholders choose not to take up their rights, the state will end up owning a majority share of 69.7% in Bank of Ireland. Another €2bn or so of the bank’s total €5.2bn re-funding exercise is set to come from a debt-for-equity swap deal with junior bondholders.

Yesterday’s meeting was arguably less fractious than last month’s annual general meeting, but the Bank of Ireland board was still heavily criticised from the floor for returning to look for more money from shareholders 12 months after the last round and many said they wouldn’t be investing further.

The share-placing exercise will run from today until 11am on July 26.

The bank’s chairman, Pat Molloy, said the latest exercise should result in “a strongly capitalised group, capable of supporting future economic recovery”.

Mr Molloy added that, although fundraising talks with private equity sources hadn’t been successful, that avenue for investment hasn’t been totally exhausted as yet.

One bank shareholder expressed concern over investing more money in the bank, when trust was still a major issue.

“Unless we can be sure of integrity at the top table, we’ve no business in investing more money,” they remarked.

The cost of fees — around €150m in total — for the rights issue was also criticised. Shane Ross called the amount — €100m going to the Government for underwriting fees and the remainder going to various financial advisory firms — “outrageous” and “staggering”.

In response, the bank’s board said the total fee figure was still an estimate, depending on the outcome of the share placing.

However, chief financial officer, John O’Donovan, said the fees represented “the market norm”.

Pat Molloy added that “these people, I’m afraid, don’t come cheap, but that’s what we’re confronted with”.