Wednesday 24 May 2017

BoI's new shareholders millions richer from underwriting fees

Finance defends massive costs as minimum amount that could be agreed with bank's group of investors

Laura Noonan

Laura Noonan

BANK of Ireland's new strategic shareholders shared tens of millions of euro in underwriting fees for their €1bn investment in the bank, the Irish Independent has learned.

But sources close to the Department of Finance last night defended the fee as the minimum that could be agreed, and stressed that the Government had refused many other investor demands, including indemnifying buyers against BoI's future losses. The news comes days after BoI was rescued from the grip of nationalisation by a group of five investors including Canadian insurer Fairfax Financial, US billionaire Wilbur Ross and US investment giant Fidelity.

The sale -- dubbed 'Project Foxtrot' in honour of Fairfax's lead role -- was put together in just four weeks after talks with private equity suitors collapsed when the Government refused to indemnify them against the bank's possible future losses.

The mechanics of the deal saw the quintet of investors agree to spend up to €1.1bn on shares that were not taken up by existing shareholders who'd been given the opportunity to take part in a so-called rights issue.

That arrangement made the quintet 'sub-underwriters' of the deal, falling behind the National Pensions Reserve Fund (NPRF) which had initially agreed to underwrite all €2bn of the issue.

The NPRF had underwriting fees of 4pc for its role. A spokesman for the Department of Finance confirmed that the new investors also got an underwriting fee.

The fee is likely to have been less than the 4pc enjoyed by the NPRF, implying a figure of less than €44m for the €1.1bn the quintet agreed to buy.

Their fee is still understood to have been in the tens of millions.

News of the underwriting fee is likely to fuel arguments that the quintet have got a fantastic deal on BoI at the expense of the taxpayer, but sources close to the department last night insisted the best deal for Ireland had been done. While the Government has paid €1.9bn for a BoI stake valued at just €300m today, the collapse in the bank's value since the first injection in February 2009 would have hit the state's investment, regardless of the outcome of this week's recapitalisation.

A spokesman for the Department of Finance confirmed that BoI's new owners would be "locked in" to their investment for an unspecified period.

Earlier in the week, Fairfax Financial boss Prem Wasra told the Irish Independent that he saw the investment as a "long-term" play.

Irish Independent

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