Shares in BoI jump by 7pc after release of its plan to raise €4.1bn
SHARES in Bank of Ireland rose by 7pc yesterday after the bank released a reassuring trading statement and promised to give details on its €4.1bn capital raising plan "in the coming weeks".
The interim management statement (IMS), which came just four weeks after BoI's full-year results announcement, confirmed that loan losses continued to fall in the first four months of the year.
BoI also reported a 10pc improvement in its crucial 'loan to value' ratio, as deposits rose "marginally" and loan volumes reduced by a "low single digit percent" amid asset sales and customers refinancing elsewhere.
"While trading conditions in the first quarter of 2011 continue to remain challenging, we believe the Irish economy has begun to stabilise," the statement added.
Investors' main focus is on how the bank plans to raise €4.1bn in capital by the end of July without ceding a massive stake to the Government and obliterating the stakes of existing shareholders.
Yesterday's statement said BOI was "working actively" towards reaching that €4.1bn target "through a combination of capital management initiatives, supports from existing shareholders and other capital management sources".
"The group notes the Minister for Finance's comments that subordinated bondholders are expected to make a significant contribution," the statement added.
BoI is widely expected to offer to exchange some €2.6bn of subordinate debt for equity in the bank, the recent statements for Minister Noonan have triggered speculation that the terms of the offer will be quite penal.
Analysts yesterday pointed to the capital-raising as the "key" issue for BoI over the coming months. In a note to clients, Goodbody said the trading update was "broadly as anticipated and flagged in the mid-April results", a sentiment echoed by Davy.
NCB, however, expressed concern about the "lack of lending volume" and whether BoI will "be able to earn sufficient pre-provision profits to justify investors participating" in the upcoming equity raise.