A successful deal could save the Exchequer up to €1.5 billion as the state has underwritten a €1.91bn share sale through which the bank is endeavouring to persuade mostly retail investors to buy new shares in the troubled lender.
In an unusual move on Saturday afternoon the Department of Finance disclosed that it was involved in negotiations with potential investors. The negotiations continued into yesterday.
In the emailed statement, a departmental spokesman said: “The State is in discussions with potential equity investors in Bank of Ireland in relation to a possible material investment in the bank. As at the time of this announcement, these discussions continue and may or may not lead to a transaction. It is not possible to say anything further at this time in relation to the ongoing discussions.”
Transport Minister Leo Varadkar said yesterday in an interview with RTÉ that “real discussions’’ are underway on the sale of a stake in Bank of Ireland.
Varadkar said, after winning a cut in the bailout interest rate, the “next phase” of negotiations will centre on sharing losses with the senior unsecured, unguaranteed bondholders at Anglo Irish Bank Corp.
It is understood that the potential outside investors in Bank of Ireland are prepared, under the right terms, to take a significant portion of the rights issued which existing shareholders fail to take up. One of the outside investors is a Canadian entity. Irish people hold a number of key executive positions in Canadian banks which have come through the banking crisis better than in other parts of the world.
It is expected that existing investors will, at most, take up just 30% of the shares allotted to them under the rights issue. This would leave a shortfall of between €1.3bn and €1.5bn to be taken up by the state and result in its shareholding soaring past 50% to close to 70%, making it the major shareholder. The state’s stake could be considerably lower if the outside investors decide to take a significant holding in Bank of Ireland, resulting in the State remaining a minority shareholder in the bank.
Finance Minister Michael Noonan is understood to favour the bank remaining out of state control if a deal can be reached.
The state is scheduled to transfer as much as €19bn to help complete the recapitalisation of Allied Irish Bank, Bank of Ireland and Irish Life and Permanent this week. The bulk of the funds have already been placed on deposit with the banks by the National Treasury Management Agency.
However, a deal to keep the state’s holding well below 50% in Bank of Ireland could reduce the cost to the state of the recapitalisation programme which was originally set at €24bn.