BoI to join guarantee and issue bond
Bank of Ireland (BoI) is poised to become the second lender to use the new banking guarantee scheme, according to market sources, and is expected to tap investors with a €1bn-plus bond as early as this week.
The bank is likely to follow Irish Life & Permanent in issuing a three-year bond, but unlike the bancassurer, BoI is preparing to sell euro-denominated paper.
BoI confirmed yesterday that it has signed up to the so-called Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009, which enables the country's banks and building societies to issue bonds of up to five years in duration.
BoI raised €2.5bn of unguaranteed debt in public bond offerings late last year, though it had to pay up to ensure that the issuances were successful. The average government charge for the new guarantee is around 1pc, compared to an average 0.2pc-2.5pc for the original.
The higher cost will force institutions to take a close look at market conditions before deciding on whether to use the extended guarantee.
At the end of September, only 33pc of BoI's wholesale funding had a maturity of more than one year -- in other words, beyond the date of the original scheme.
The bank must refinance €5bn of publicly issued bonds in September alone, with €13.6bn due to mature for the entire year. The bank raised further billions by way of private placements.
The Irish Independent reported yesterday that the European Central Bank had questioned why Ireland's new scheme covers borrowings of less than three months, when the Frankfurt-based bank has indicated to eurozone countries that guaranteeing such short-term money should be avoided.
It said that countries such as Ireland should avoid undermining policy across the single-currency region on bank rescues.
But the Government argued that Irish banks continued to experience liquidity problems despite recent improvements in the markets.
Meanwhile, the group's shareholders are convening at an extraordinary general meeting in Dublin this morning to vote on its planned participation in the National Asset Management Agency.