Bank Of Ireland Raises Fresh Capital

by Jason Gorringe, Tax-News.com, London

05 May 2010

The Irish Minister for Finance, Brian Lenihan ,has welcomed an announcement by Bank of Ireland that it intends to raise EUR3.4bn of equity capital, which will bring the bank in line with the stringent capital requirements set out by the financial regulator.

The National Pension Reserve Fund Commission will enter into a transaction with Bank of Ireland which will form part of this capital raising exercise, Lenihan explained. Commenting on the announcement, Lenihan stated: “This transaction is good news for our economy, good news for the taxpayer and good news for Bank of Ireland’s shareholders and investors. The level of private sector investment is tangible evidence of the growing international and domestic confidence in both the Bank of Ireland and our economy. Today’s announcement shows that Ireland can and is addressing the difficulties in our financial sector.”

Lenihan explained that the transaction has been agreed on market terms which will allow the government and taxpayers achieve a significant return on its investment.

The Minister said: “Bank of Ireland is the first of our financial institutions to emerge from the banking crisis. Through NAMA (National Asset Management Agency), we have removed the crippling uncertainty about the losses resulting from the bank’s riskiest loans, and we have done so on terms that are fair to the taxpayer. The transactions announced are consistent with the long-stated government preference that private market solutions to capital raising are found and implemented. Our policies have delivered a cleaner, well-capitalized and better funded Bank of Ireland that is now in a position to provide credit to support economic recovery and new job creation."

When the deal is complete:

• The state will hold approximately 36.5% of the bank's shares;
• The state will continue to hold approximately EUR1.78bn of preference shares and these will earn a higher coupon of 10.25%;
• The state will get EUR491m profit for its warrants;
• The state will receive some EUR51m in fees for conducting this deal.

“The overriding objective of the government’s banking policy is to ensure a healthy functioning banking system that can meet all the needs of the economy. [The Bank of Ireland’s] announcement is a crucial step in realising this objective,” Lenihan said.

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