BoI must balance stags and shares over rights issue
The scale of the challenge ahead for Bank of Ireland is not encapsulated in the amount of money it is raising (€4.2bn in core Tier 1 equity), but in the number of shares which will be created by its rights issue -- a startling €30bn.
If the bank ever returns to profit, the earnings per share number is going to look a little small.
Of course nobody is going to be paying any attention to that metric, so the chief plank of the Bank of Ireland investment appears to be capital growth.
Those backing the rights issue will say loan losses have bottomed out, margins are being repaired and costs are going to come down, while competition in its core market is going to reduce.
All of this may be true, but the lack of a dividend, the threat of an Irish sovereign default, uncer-tainty over future profit streams and a funding crux would seem to tell a different story.
For CEO Richie Boucher the next few weeks are going to be like walking through treacle. With the bank holding Irish government bonds and NAMA bonds linked to the Irish Government on its balance sheet, talk in the air in Europe about defaults is going to hinder progress even further.
Still, one would expect interest to come from those who normally like to 'stag' an IPO or a right's issue -- these are short-term profit takers who sell their stock once live trading kicks in and the shares rise in value, albeit temporarily.
The problem this time around is that up to 26pc of the shares could be held by former bondholders, many of whom are not allowed in the normal course of events to hold shares, hence they are likely to sell, and quickly. This means that a huge amount of investors will be looking to become stags for a day.
While Boucher and Co would prefer to have more long-term shareholders on board, beggars can't be choosers.