Business Irish

Monday 11 December 2017

Handing lenders BoI stake 'would let off taxpayers'

Donal O'Donovan

TAXPAYERS could avoid pumping any more money into Bank of Ireland by handing a chunk of the bank to its own lenders, according to analysts at US banking giant Morgan Stanley.

Morgan Stanley says BoI could avoid tapping taxpayers for €4.2bn to meet its capital in part, by giving subordinated bondholders a share in the company. As owners, the bondholders would then pump in cash to retain their stake, the US bank said.

Such an offer could reduce the amount of cash the bank needs to raise and at the same time cut its overall debt.

Under what they call "a pragmatic recapitalisation" analysts at the US bank say "no (more) taxpayer money might be needed" to meet the financial regulator's target of raising €4.2bn by the end of July.

The Morgan Stanley plan would see subordinated bonds exchanged for a stake in BoI, instead of for cash. That would raise €2.6bn of capital.

Morgan Stanley believes that as owners of a substantial stake in BoI the bondholders would then provide at least 50pc of the remaining €1.6bn the bank needs to stay out of state control.

Morgan Stanley's analysts believe subordinated bondholders would accept shares on a voluntary basis, if the offer was made on market terms. It believes the bondholder group has access to enough cash to be able to reinvest to protect their stake.


Current BoI shareholders would see their stake diluted under such a scheme, and further reduced, if they were unwilling to invest fresh cash to help fund the recapitalistion. The scheme would save money and ensure bond holders share the cost of the bank recapitalisation.

"Debt-for-equity swaps, where lenders are subordinated and assume greater risk of loss, are consistent with burden-sharing and have significant advantages over more Draconian alternatives," according to the research.

Morgan Stanley thinks BoI's current shareholders are less likely to have the funds, or appetite, to participate in a recapitalisation. Morgan Stanley says BoI can meet its capital in part by offering to give subordinated bondholders a share in the company and allowing them to participate in a share sale.

Such an offer could reduce the amount of cash the bank has to raise while at the same time cutting the bank's overall debt.

That's only if what Morgan Stanley call's "appropriate terms can be agreed" however.

Irish Independent

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