DESPITE last week's success in raising €2.5bn of five-year funds, Bank of Ireland remains on life support. With the EU blocking interest payments on the State's €3.5bn of preference shares, the probability of de facto nationalisation now looms for Ireland's oldest bank.
While last week's funding was well-received, with investors offering to buy up to €3.3bn of five-year funds paying a 4 per cent interest rate, the fact remains that the issue would not have got away without the State guarantee. Throw in the fact that the EU has barred BoI from paying interest or dividends on its tier-one and upper tier-two capital, including the Government's preference shares, and the outlook remains grim.
The move by the EU will make it even more difficult for BoI to stay out of majority state ownership. With the government having the option of receiving the 8 per cent coupon payable on the preference shares in the form of ordinary shares instead of cash, existing shareholders could find themselves being diluted very quickly.
A €280m ordinary-shares payout would dilute existing bank shareholders by almost 20 per cent. And then there are the warrants which give the government the right to purchase up to 25 per cent of BoI at prices well below the current market price.
Add it up and it's difficult not to believe that, even at the current €1.43 price, BoI is still way too dear.