Bank of Ireland confident of raising €1.5bn in rights issue
Published 01/04/2010 | 05:00
BANK of Ireland chief executive Richie Boucher says a number of investment banks have lined up to fully guarantee the group's upcoming rights issue, which is expected to raise up to €1.5bn.
The bank, which yesterday unveiled an underlying pre-tax loss of €2.9bn for the nine months to December, is understood to be ready to push the button on a major €2.7bn capital raising within weeks, as soon as Brussels gets back to it on its restructuring plan. The new financial watchdog has demanded that BoI raise this amount of capital by the end of the year to meet new regulatory capital requirements.
Another major element of the fundraising is a conversion of a certain amount of the Government's €3.5bn preference shares in the bank into ordinary shares, leaving the State with a stake of about 40pc. Davy analysts believe this could be in the region of €600m.
A further €500m is expected to come through the conversion of some of the group's subordinated debt into equity. Credit Suisse, UBS, Deutsche Bank and Citigroup are understood to be in the final throes of committing to guarantee -- or what's known in the market as underwrite -- the rights issue element. Some observers were surprised that the bank also said it was in discussions to buy back, at market price, the right that the Government has to take up to a 25pc stake in the bank in four years' time.
The rights are exercisable at an average price of 37c, pointing to an immediate gain for the State if redeemed around current trading levels.
Shares in BoI soared 24.2pc to €1.60 yesterday, as investors brushed off the fact that the bank had written down €4bn of bad loans in the reporting period. "The market is just relieved that one of the bank's capital requirements is not vastly different than what was expected and that it seems to have a plan to raise the (equity)," said one dealer. The discount BoI has had to take on its first batch of loans bound for the National Asset Management Agency (NAMA) stands at 35pc, which is much higher than the average 27pc haircut that analysts had been pricing in for the bank.
However, the cut stands well below the industry average on the initial NAMA loans, at 47pc. But Mr Boucher conceded: "It's not a proud boast to say that you're the least worst."
BoI now expects that its overall discount will not change much from the original, but the size of loans it is sending over have fallen from an initial estimate of €16bn to about €12.2bn. The bank has between 300 and 400 people working on the entire NAMA project. About €1bn of the original NAMA-bound loans have been refinanced by other banks, most likely in relation to UK property loans.
The bank also plans to cut its keenly-eyed cost-income ratio, which stood at 56pc last year, to below 50pc by the end of 2013. When asked about whether the bank has job cuts factored into its restructuring plan, Mr Boucher would only say: "The number of people we employ is factored in our costs."
BoI shaved 11pc off its costs last year, helped by natural attrition of staff.
Since March 2008, it has parted company with about 2,200 employees.
The group's net interest margin has continued to contract, falling by 14 basis points -- or 0.14 percentage points -- to 1.59pc, as the group was forced to compete for deposits and wholesale funding.
But Mr Boucher said: "We continue to improve our funding profile.
"Our loan-to-deposit ratio at the end of December was 152pc, down from 161pc last March. Excluding those assets held for sale to NAMA, the ratio is 141pc."
Banks have come under huge pressure since the crisis began to lower their dependence on wholesale funding, with many analysts saying they need to pull back to a loan-to-deposit ratio in the region of 100pc to 120pc.