BoI warned it must pay State €280m by deadline
Published 19/02/2010 | 07:25
BANK of Ireland is facing major financial pressure after receiving legal advice that it must give the State €280m worth of shares by this weekend.
The payment is due as part of last year's €3.5bn bailout of the bank. The Irish Independent has learned that a bylaw governing Bank of Ireland's (BoI) operations makes it necessary for it to pay the NTMA €280m in ordinary shares this weekend or early next week at the latest -- despite recent comments by NTMA chief John Corrigan that this payment was not immediately necessary. The bylaw was agreed by shareholders last March.
The NTMA, BoI and the EU Commission are expected to make last-ditch attempts today to find a solution to the problem to avert a full-blown crisis at the bank.
BoI and the Government had agreed last year to start making cash payments on the €3.5bn invested in the company -- with the first payment now due as soon as this Saturday.
But the EU Commission has halted all cash-coupon payments by BoI and Allied Irish Banks (AIB) while it examines their restructuring plans.
However, under an arrangement with the Government, ordinary shares worth the equivalent amount must be transferred in lieu of the cash payment.
The situation was threatening to become a major crisis for BoI, but last week NTMA boss Mr Corrigan soothed concerns by saying he was prepared to wait several weeks for the cash payment and was not going to force the bank to pay the shares either.
This was considered a satisfactory outcome by all sides. This is because Bank of Ireland simply cannot afford to transfer €280m of ordinary shares to the NTMA at a time when the bank itself is only worth €1.3bn.
It is understood that the bylaw involved, which states that the bank "shall" issue what is known as "bonus stock", can only be amended by shareholders at an extraordinary general meeting.
BoI and the NTMA were not prepared to make any comment yesterday.
The payment is due this Saturday -- although the agreement with the Government (via the NTMA) allows for the payment to be made on the first business day after this initial deadline.
The Government has been under political pressure on the issue for some weeks, with the Labour Party accusing ministers of failing to guarantee properly the taxpayers' interests.
Yesterday their finance spokeswoman Joan Burton revealed that the preference shares invested in AIB and BoI were not cumulative, meaning coupon payments missed by the banks do not fall into arrears, but are simply not paid.