Business Irish

Wednesday 18 October 2017

BoI will emerge on top in future, says major shareholder

Harris predicts reduction in competition

Emmet Oliver

BANK of Ireland's largest private shareholder, Harris Associates, has declared that the bank will "emerge on top'' in Irish banking due to the lack of competition in future years.

In its latest update to investors, Harris, which holds Bank of Ireland stock through its Oakmark funds, said the Irish banking market would, in effect, be dominated by AIB and Bank of Ireland in future years.

While an investment in Bank of Ireland has impacted negatively on the fund's performance, Harris, which is based in the US, remains defiant about retaining its shareholding and believes the State will not end up with a stake of more than 50pc in the company.

"The Irish Government has indicated that, after various restructurings and mergers, the market will consist of only two banks -- Allied Irish Bank and Bank of Ireland. The diminished banking system and reduced competition should lead to higher profitability during more normal economic conditions,'' claimed Harris.

"It will take time for the economic environment to improve in Ireland, but in our view, Bank of Ireland will emerge on top,'' it said.

According to Bloomberg data Harris and its clients are sitting on a 5.7pc stake, with the State on a 36pc stake.

Fundraising

However, Bank of Ireland is in the middle of a major fundraising campaign, which means these stakes are set to be radically altered.

The bank needs €1.91bn from shareholders from a rights issue to meet regulatory requirements set by the Central Bank and Financial Regulator. The bank's stock has been valued at 10 cent each -- a 13.8pc discount on the closing price of the bank's shares last week. The rights issue is being underwritten by the National Pension Reserve Fund.

Several private-sector players have expressed an interest in taking a stake in the bank, but they have demanded extra concessions, which the bank has not been willing to grant.

It is understood some investors wanted guarantees concerning future loan losses, for example.

The bank's current market value is just €614m and this year alone its shares have tumbled by 69pc.

The main losers have been large US mutual funds and asset managers, among them Blackrock -- ironically the company that did the March stress tests, which produced the recommendation that the bank raise €5.2bn of fresh capital.

Irish Independent

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