Bank of Ireland raises €750m through five-year covered bonds

Bank of Ireland has raised €750m through a five-year covered bond at a yield of 0.527%.

Demand for the bond was worth €1.6bn. “We are not surprised by the positive market reaction to this sale,” said Investec chief economist, Philip O’Sullivan. The yield on existing Bank of Ireland covered bonds dropped to a low of 0.54% this week, he added.

Covered bonds are backed by Bank of Ireland’s residential mortgages. The value of the bonds have been boosted by their inclusion in the ECB’s asset-backed securities programme. The price of the bond was 20 basis points over mid-swaps, which compares very favourably to the 80 basis points over mid-swaps achieved last march for a similar €750m covered bond.

Merrion Capital senior credit analyst Ciaran Callaghan said the move would improve Bank of Ireland’s net interest margin.

The bank has roughly €3bn of covered bonds falling due for redemption this year. These bonds were issued at significantly higher yields than the current bond. The net interest margin is the difference between what the bank charges for its loans and what it pays for deposits and wholesale funding.

“We expect this will be the first in a series of covered bond sales by Bank of Ireland in 2015, given that it has roughly €3bn of benchmark covered bonds maturing this year, while its latest disclosed loan-to-deposit ratio is 111%,” said Mr O’Sullivan.

The value of Irish covered bonds have been greatly enhanced by the improvement in the property market. Residential property prices, particularly in Dublin, have posted double-digit gains in the past two years.

Lead investment banks on the transaction were BNP Paribas, Lloyds Bank, Morgan Stanley, Natixis and Societe Generale. Co-leads Davy and Investec. Bank of Ireland was the first of the domestic banks to return to post-provision profitability following the collapse of the financial system in 2008.

Last August it reported a €327m pre-tax profit for the first six months of 2014, compared with a €395m loss for the same period in 2013. The Government has a 14% stake in Bank of Ireland. According to NTMA’s 2014 annual review, the value of this at the end of 2014 was €1.4bn.


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