Bank of Ireland raises €750m through unsecured bond

Bank of Ireland raised €750m through a senior unsecured bond at a yield of 1.273%.

The issue was four times oversubscribed, with total demand reaching €3.2bn from roughly 250 different institutional investors.

The yield represented a significant tightening on a similar €750m five-year unsecured bond issued in January, which had a yield of 3.337%.

The credit markets have become much more attractive for sovereigns and corporates over the past number of months following the announcement by the ECB that it will embark on a €1.1trn programme of quantitative easing later this month.

Bank of Ireland has also been supported by a stronger than expected recovery. Last week, it announced a €921m profit for 2014, well ahead of analyst expectations. Davy Stockbrokers yesterday said it does not expect Bank of Ireland to encounter any problems in redeeming €1.3bn of preference shares next year.

The bank could also start paying dividends from 2017 onwards, it added. Last year, the Government sold €1.3bn of preference shares it held in Bank of Ireland. These shares, which are now held by third-party investors, carry a coupon of 10.25%.

Bank of Ireland also has €1.6bn of contingent convertible notes which carry a coupon of 10%. Both are an “inefficient form of capital”, said Davy.

It expects Bank of Ireland to issue additional Tier 1 and subordinated debt to replace the preference shares and the contingent convertible notes.

Bank of Ireland currently has a core Tier 1 capital ratio of 9.3% excluding the preference shares, which is well within regulatory requirements. The 2014 results also revealed a 50% increase in new lending to €10bn and an increase in the net interest margin.


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