Why BoI is emerging as the 'chosen one' of Irish banking
Bank of Ireland has emerged as something of a "chosen one", being the only participant in the NAMA scheme that is assured -- barring some major hiccup over the next two weeks -- of avoiding majority state ownership.
It stands alone among the five lenders in not seeing its capital requirement jump beyond what was already expected, when the new head of financial regulation, Matthew Elderfield unveiled his new targets two weeks' ago.
As such, it has a host of international investment banks lined up to underwrite a €2bn share offering, to existing and new investors.
Holders of it some of its sub-ordinated debt are also clambering to convert it into ordinary stock, which should generate a further €700m.
And, as it appears at this stage, the Government will only have to contribute €700m to the transaction, by way of converting some of its €3.5bn of preference shares into ordinary stock.
As Anglo Irish Bank, Irish Nationwide, EBS and, most likely, Allied Irish Banks have begging bowls out on Upper Merrion Street, BoI is actually looking, as part of its complex transaction, to hand back to the State up to €500m to buy out its right to a 25pc stake in four years' time.
The €3.2bn capital-raising is designed to cushion the bank's balance sheet against bad-loan losses over the next three years, even under stress-testing scenarios set out by the Elderfield.
But there are no plans, that we know of, for BoI to start redeeming the Government's remaining preference shares, which are likely to stand at €2.8bn following the deal.
State preference shares were pumped into both BoI and AIB last year to shore up their balance sheets, bolstering their so-called core tier 1 capital ratios.
The problem has been from the outset that the market never attached any weight to these shares, as they could only be used to absorb bank losses in the highly unlikely event that either one was liquidated.
Instead of boosting banks' capital bases, these investments, carrying an annual 8pc dividend, have actually been sucking blood out of already-limp institutions.
Shareholders in BoI had to cede a 16pc stake to the Government in February as it was temporarily barred by Brussels from paying cash on discretionary dividends.
AIB faces a similar dilemma next month, when its €280m annual dividend falls due.
Analysts believe BoI would do well to start redeeming the preference shares as quickly as possible.
This issue is all the more pressing as the bank has committed not to resume paying normal dividends until the shares are redeemed, or until September 2012 -- whichever comes first.