BoI is ready to operate without State guarantee
Chief executive remains optimistic about the future despite announcement of €1.2bn loss
BANK of Ireland believes it can operate without a further government guarantee and has refused to join growing calls for the support to be extended beyond the end of year.
Having revealed a near-doubling of half-year net losses to €1.2bn, chief executive Richie Boucher yesterday told analysts the bank was actively planning to "disengage from the guarantee in a prudent fashion".
Market sources are now expecting Bank of Ireland to carry out limited fundraisings outside the guarantee as early as autumn, on foot of comments from Mr Boucher.
The original guarantee -- dubbed the Credit Institutions (Financial Support) Scheme -- is due to expire in September. A second scheme, the Eligible Liabilities Guarantee Scheme (ELG), is set to be phased out between September and December.
Last week, both AIB and Anglo Irish Bank called on the Government to extend both schemes, claiming that financial markets were still too turbulent for Irish banks to raise money internationally without the guarantees.
Mr Boucher yesterday hinted that Bank of Ireland, which raised €2.9bn from investors earlier in the year, will test the market for so-called "unguaranteed" investment before the supports expire.
"We will be looking at a range of programmes, guaranteed issuances, covered bonds, secured and unsecured [bonds] across a range of geographies," Mr Boucher told analysts.
He declined to reveal how much unguaranteed funding the bank might target, saying he'd be "careful about negotiating on a conference call", but Bank of Ireland yesterday stresed the high cost of the guarantee, which is expected to come in at €300m for the full 2010 year.
Mr Boucher also stressed that Bank of Ireland has a "good story to tell" the markets.
The bank has already had its restructuring plan approved by the European Commission, has successfully raised the capital it needs to meet the Financial Regulator's end-of-year targets and has passed two stress tests.
Asked whether he would like to see the guarantee extended, Mr Boucher said he could "only focus on what we have".
"It would be foolish of me to say I don't care what happens [with the extension] -- that's absolutely not the case -- but we have to focus on what we know today and make plans on that basis," he stressed.
Yesterday's figures show Bank of Ireland improved its funding position significantly over the half-year, with just €34bn in debt maturing over the next 12 months against the €41bn of short-term debt on the book six months ago.
The bank has €7.5bn of debt coming up for refinancing at the end of September, but chief financial officer John O'Donovan stressed that the bank has €41bn of collateral at its disposal.
Despite those positives, analysts yesterday expressed scepticism about whether the bank could fund itself fully without the government guarantee from the start of 2011.
In a note to clients, Davy said that it "seems certain" that the ELG scheme "will have to be extended to shore up confidence" and facilitate banks that have not yet secured their funding.
Mr Boucher yesterday refused be drawn on whether the bank would continue to make some use of the guarantee should it be extended.
Merrion analyst Sebastian Orsi, meanwhile, said that BoI's prediction of funding itself without the guarantee was "probably optimistic in the short term and would involve a price [in the form of higher interest]".
"The assumptions are the correct ones to be planning under," he added.