Bank of Ireland shares ended up strongly in Dublin this evening after it announced plans to raise €3.4 billion of funds in a complicated deal which will see the State's shareholding increase to 36%.
Bank of Ireland shares gained 6.1% to close at €1.91 in Dublin, with analysts saying that a placing of shares with institutional, aimed at raising €500m, was 'very strongly oversubscribed'.
The Government will not have to issue fresh funds to increase its stake in the bank as the new money will come from private investors. Ordinary shareholders will see their stake in the bank diluted although they will have an option to buy more shares at a discount.
Bank of Ireland needs new funds after transferring loans to the National Asset Management Agency in order to comply with targets set by the Financial Regulator.
The Government will convert €1.7 billion of funds given to the bank last year into ordinary shares. It is also taking up rights it is entitled to of €700m.
Those moves bring the State's shareholding from 16% to 36%. The other €1.7 billion is coming from private investors. Many will be ordinary shareholders who will have an option to buy more shares. That stock will be offered to them at a discount, possibly of about 40%.
It all means Bank of Ireland will be the only institution participating in NAMA which will not be majority state owned.
Bank of Ireland Governor Patrick Molloy says today's announcement marks a significant turning point for Bank of Ireland and its stockholders. He said there had been substantial private sector interest in the capital raising.
The bank needs to raise €2.7 billion to meet the Financial Regulator's new capital requirements after handing over its loans to NAMA. It is also in talks to sell Bank of Ireland Asset Management which could see it raise up to €100m.
As previously announced, it also wants to sell off New Ireland Assurance, ICS Building Society and its foreign currency exchange corporation.
Trading still tough, says Bank of Ireland
Bank of Ireland also issued a trading update, which says trading conditions in its core markets in Ireland and the UK over the first three months of the year are tough, though economic conditions have recently shown some signs of stabilisation.
It says its net interest income is being affected by a number of factors - the low interest rate environment; competition for deposits and the higher cost of wholesale funding due to the Government's guarantee scheme.
The bank says lending margins on new business remain strong, but this is being partly offset by low levels of new business activity.
It anticipates a lower net interest margin in this year, but says cost savings are being achieved through business disposals and other cost saving initiatives brought in last year.
It says the tough economic conditions, unemployment and weak consumer sentiment are continuing to affect its loan impairment charge, but this will in line with what it has previously indicated.
'We continue to believe that loan losses on our non-NAMA-bound loan portfolios have peaked with the impairment charge progressively reducing as previously guided. Loan losses on these portfolios for the three year period to 31 March 2011 remain within the loan loss guidance of €4.7 billion,' the statement added.
Lenihan says BoI plan good news for taxpayers
Finance Minister Brian Lenihan has welcomed today's capital raising details.
He said this will ensure Bank of Ireland meets the stringent capital requirements set out by the Regulator.
'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 Minister said.
'The level of private sector investment is tangible evidence of the growing international and domestic confidence in both Bank of Ireland and our economy. I have stressed on numerous occasions that others have confidence in us and we need to demonstrate that confidence in ourselves. Today's announcement shows that Ireland can and is addressing the difficulties in our financial sector,' he added.
He said that Bank of Ireland has a strong future as a well capitalised and 'cleaned up' bank that will benefit its investors and our economy.
He added that the transaction has been agreed on market terms which will allow the State and its taxpayers achieve a significant return on its investment.
'This transaction represents a good deal for the taxpayer', he stated.
