Monday 23 October 2017

State has no plan yet for €1.8bn in BoI loan cash

Bank of Ireland Group Chief Executive Richie Boucher, pictured at the bank's AGM
Bank of Ireland Group Chief Executive Richie Boucher, pictured at the bank's AGM
Donal O'Donovan

Donal O'Donovan

The Government has not yet decided how €1.8bn of rescue loans will be used after the debt is repaid by Bank of Ireland.

The bank announced a deal to pay back the cash yesterday.

Bank of Ireland said it will repay the €1.8bn of state rescue loans by raising new cash from private shareholders.

Once the preference shares are redeemed, Bank of Ireland will have returned €5.9bn to taxpayers, including repaid debt, fees and interest, according to Fiona Hayes of Cantor Fitzgerald.

Rescuing the lender cost taxpayers €4.8bn out of the total of €64bn the State spent rescuing the entire banking system.

The Government is expected to receive a small premium over the face-price of the debt as the money is paid back.

The cash will be repaid to the National Pension Reserve Fund (NPRF), which financed a €3.5bn rescue deal for the bank in 2009.

The Government previously agreed to swap the rest of the 2009 debt for ordinary shares in the bank and as a result it will continue to hold a 15pc stake in Bank of Ireland.

"This transaction will build further confidence in Ireland's recovery and will strengthen Ireland's return to normal market funding," Michael Noonan said in a statement.

A spokesman for the Department of Finance said repayment of the cash received from the bank will boost Ireland's net financial position, but that no decision has been made on how to use the cash.

The money will be paid into the "directed" portfolio of the NPRF, which means the Minister for Finance has the final decision over how it is spent.

For Bank of Ireland, paying back the preference shares means a ban on dividend payments to shareholders will now be lifted.

DIVIDENDS

However, ongoing losses and the need to build up capital ahead of tighter global rules for lenders at the end of the decade means that, in practice, dividends look unlikely for now.

It also means the State no longer has a right to appoint a quarter of the board of Bank of Ireland, but it never actually exercised that right.

It will not automatically end the cap on pay at Bank of Ireland, a spokesman for the Department of Finance said.

Bank of Ireland wil repay the preference shares by raising €580m from new and existing shareholders through a share sale, and a further €1.3bn by issuing new preference shares on better terms, for the bank, than the current debt to the state.

Its 15pc shareholding means the Government will remain the biggest single shareholder in the bank, even after the latest debt repayment.

"A successful refinancing of the government preference shares represents a significant step back to normalised operating conditions, giving the bank and its shareholders more control over the group's strategy," according to Ciaran Callaghan, an analyst at Merrion Stockbrokers.

Bank of Ireland mandated Credit Suisse, Davy, Deutsche Bank and UBS as placing agents, with Bank of America Merrill Lynch joining as joint-lead managers and underwriters for the debt sale to private investors.

Goldman Sachs advised the Government.

The bank said the new shares would equate to a maximum of 9.99pc of its existing stock, breaking with stock market norms of a company not issuing new shares worth more than 5pc of its stock market value without a special resolution from shareholders.

"As we exit our EU/IMF programme on December 15, this transaction will build further confidence in Ireland's recovery and will strengthen Ireland's return to normal market funding," Mr Noonan said in a statement.

"The Irish banking system is recovering, international investors are returning and this has positive implications across the banking system."

Irish Independent

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