Bank of Ireland raises €2 billion to repay State

Thursday 05 December 2013 10.13
Bank of Ireland says repayment to State is a further step in its recovery
Bank of Ireland says repayment to State is a further step in its recovery

Bank of Ireland has raised enough money from private investors to pay more than €2 billion back to the Government next week.

The deal means Ireland's debt will peak at a lower level than originally expected.

The bank raised €580m of equity through a share placing as part of the deal to repay State-owned preference shares

The remainder is being raised by issuing debt, secured on the preference shares, to private investors.

The Minister for Finance, Michael Noonan, welcomed the sale and said the State would recoup around €2.05 billion from the investment.

This included the initial principal of over €1.8 billion, interest worth €151m and a profit of €62m.

Bank of Ireland had faced a March 2014 deadline to pay the State back before a clause under its €4.8 billion bailout increased the cost of buying the shares back by 25%, or €450m.

The money was part of recapitalisation used to support the Irish banks at the peak of the economic crisis. Along with five other lenders, Bank of Ireland was rescued by the State. 

The State's stake in the bank has been reduced from 15% to 14% following the deal, but will remain valued at €1.2 billion.

It also means the taxpayer ultimately profits from its investment in Bank of Ireland. 

In a statement, Bank of Ireland said the move was a further step in the bank's recovery and the normalisation of its relationship with the State. 

It said that over the last four years, it has taken a number of steps to normalise its relationship with the State, including the sale of €1 billion of contingent convertible notes last January and the expiry of the Government guarantee scheme last March. 

Bank of Ireland shares closed 2.3% lower in Dublin trade today.

Michael Noonan said that he was pleased with Bank of Ireland's decision, describing it as "a very positive and welcome development".

"The successful conclusion of this transaction will see the State recoup a premium on its €1.8 billion investment thus generating a profit for the taxpayer," the Minister said. 

"As we exit our EU/IMF Programme on the 15th of December, this transaction will build further confidence in Ireland's recovery and will strengthen Ireland's return to normal market funding. The Irish banking system is recovering, international investors are returning and this has positive implications across the banking system," Mr Noonan added.