Bank of Ireland acts to shift more risk off its books
Bank of Ireland has shifted the burden of risk from some $1.7bn (€1.43bn) of leveraged finance to a group of investors as it moves to bolster its capital reserves ahead of an EU review of its internal risk measures.
The deal mirrors a similar transaction struck by the bank at the end of last year, when it moved the so-called first loss risk on €3bn of business loans to international insurers.
That agreement - the first of its kind in the Irish banking sector - cost Bank of Ireland €21m a year. In this latest deal, the investors assume the credit risk for about $205m of potential credit losses on the portfolio in exchange for a $24m annual coupon.
However, as with last year's transaction, the leveraged finance exposures, which typically involve loans to companies already carrying debt, remain on the bank's balance sheet.
The arrangement clips two basis points off the bank's net interest margin but boosts its core capital buffers by 50 basis points.
Investec's Owen Callan stressed the recalibration was not material and characterised the deal as "fine tuning" before the year end. Over the past two years the lender has revised its so-called Internal Ratings Based model, an internal calculation that measures risks in its mortgage book. As with its peers, these adjustments are aimed at complying with the upcoming ECB review of all lenders.