Promissory note warning by BoI

Bank of Ireland has warned of the possible negative effects that the Government’s scheme to delay repayments on the Anglo promissory notes could have on the bank.

In the circular sent to shareholders, the bank said that the swapping of bonds involved in the scheme could impact on the banks liquidity, if Ireland was to default on its debt obligations.

“The purchase of the bonds pursuant to the transaction will further increase the exposure of the bank to the risk of Irish sovereign downgrade or default. If the State defaults on its sovereign debt obligations, this would have a material adverse effect on the value of the bonds, and the bank could suffer a loss arising from the reduced value of the bonds, which could have an impact on the bank’s liquidity,” the circular said.

Bank of Ireland is holding a shareholder meeting on June 18 to consider the proposed securities repurchase transaction between the bank and IBRC which is guaranteed by the finance minister.

The proposed scheme would see IBRC taking €3 billion in cash from Bank of Ireland in exchange bonds. The bank could make a profit of up to €38.7m based on an interest margin of 1.35% if everything goes to plan.

Bank of Ireland stated that the banks residential mortgage arrears continued to rise as the economic crisis dragged on and unemployment mounted.

“Arrears in the group’s Irish residential mortgage book have continued to increase reflecting the difficult economic environment in Ireland and elevated levels of unemployment,” the circular said.

A knock-on effect of the depressed Irish economy has been a deterioration in the performance of the bank’s business clients.