Friday 24 November 2017

BoI may tap shareholders once more to repay State

Richie Boucher 'relaxed' about upcoming industry stress tests.
Richie Boucher 'relaxed' about upcoming industry stress tests.

Joe Brennan

BANK of Ireland could tap shareholders again for cash within months as it seeks to repay €1.8bn of its government bailout. Chief executive officer Richie Boucher said this week he would tell investors as soon as possible how it would refinance State-owned preferred shares that mature in March.

A share sale may happen by the year-end, according to Emmet Gaffney, a Dublin-based analyst with Investec Bank.

"They're most likely to launch a rights issue before the year is out, as there are risks to waiting until next year and the market conditions may not be as favourable," said Mr Gaffney, who has a hold rating on the stock.

The bank may sell other securities, such as subordinated debt, as well as the shares to help plug the shortfall. The Government stepped in to save the bank, along with the rest of the country's financial system, in 2009 after the real-estate bubble burst.

If Mr Boucher doesn't raise the €1.8bn and pay off the State, the amount the lender owes the Government will rise 25pc to €2.25bn.

"It's a key priority for our business," the bank said in an e-mailed response to questions, adding that it was looking at a range of options.

The preference shares are a legacy of the State's initial €3.5bn rescue of Bank of Ireland in 2009. Bank of Ireland avoided majority state control during the crisis but the Government still controls a 15pc stake in the bank.

Taxpayers would have been left with about half of Bank of Ireland following a share sale in July 2011, had the Government not agreed at the time to sell a 35pc stake to five investors, including Wilbur Ross's WL Ross and Toronto-based Fairfax Financial.

Now another share sale, potentially diluting the holding of the current shareholders, is the most likely option for raising the cash the bank needs, analysts said.

Shares in the bank have doubled to 22.9 cents each this year, amid signs that the economy is stabilising.

"The stock has largely been seen as a proxy for the Irish recovery, so there should be good appetite" for a share sale, said Scott Sheridan, an analyst in London with Nomura Holdings, which sees the bank issuing €1bn of shares "as a base case" by the end of March.

Last month, Mr Boucher said he was "relaxed" about industry stress tests to be carried out across Irish and European banks next year, having carried out his own "rigorous" internal capital assessment.

In all, Mr Boucher has raised almost €10bn of equity capital since 2009 to absorb loan losses though share sales and inflicting losses on junior bondholders.

The Government is unlikely to buy new shares if the bank does try to tap investors because it's focused on trying to recoup the money it ploughed into the country's banks, said Mr Gaffney at Investec.

"By not taking up its rights, the Government's shareholding would reduce and may make it easier to place in the market down the line," said Mr Gaffney. (Bloomberg)

Irish Independent

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