BoI targets existing lenders for equity swap
Published 02/04/2011 | 05:00
BANK of Ireland is hoping to raise more than €1bn by convincing lenders to swap their debt for shares in the bank. It will unveil other capital-raising measures on April 14.
The news comes after the Central Bank told BoI it must raise €4.2bn "soon" to get its capital to the level demanded by the latest stress tests.
BoI believes that it needs to source between €2bn and €2.5bn of this cash privately in order to avoid falling into majority state ownership in the summer.
Central Bank governor Patrick Honohan told journalists that it was "only realistic" to expect all the Irish banks to end up being majority state-owned.
But investors appeared to back BoI's bid for independence yesterday. Its shares shot up as much as 50pc on the bank's bullish comments.
In a statement, BoI said it was "working actively" on ways to raise cash through "a combination of capital-management initiatives, other capital market sources and support from existing shareholders".
The first prong of BoI's capital-raising strategy is believed to involve offering investors who hold €2.6bn of junior bonds the opportunity to swap these for equity in the bank.
BoI believes that it can boost its capital by more than €1bn from this exercise.
The bank is also preparing for a private placement, whereby tranches of new shares would be placed with large institutional investors or sovereign wealth funds.
The third prong of the capital bid will involve a "rights issue", in which existing shareholders are given the opportunity to buy special new shares.
This closely mirrors BoI's successful €3bn capital raising last spring. The advisers who worked on the 2010 efforts -- Credit Suisse, UBS and Deutsche Bank -- are to be re-appointed in the coming weeks.
The bank plans to reveal full details of this year's capital strategy on April 14, when it will announce its full-year results to the market.
Earlier in the week, most market commentators believed BoI had little or no chance of avoiding majority state ownership, since its multi-billion capital demand would dwarf the bank's value. Yesterday, however, analysts appeared more supportive, with Davy saying BoI "retains a reasonable prospect of recreating an equity-investment case in the near term".