Tuesday, December 03, 2013
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Bank of Ireland is expected to announce a preference share repayment deal within the coming days, despite confusion arising yesterday as to the full extent of money it may need to cover loan losses.
BoI is likely to announce plans to raise around €500m, either this week or in the early part of next week, via a share placement. Those proceeds will be used to partially pay off the Government’s €1.8bn stake, with the balance coming from the sale of the outstanding preference shares to a third party.
The bank said it had passed the Central Bank’s latest balance sheet assessment/asset quality review, meaning it had adequate capital levels as of the end of June — and isn’t required to raise any additional funds to support its operations.
However, that review also saw the Central Bank increase its estimates of how much BoI might need for loan impairment provisions — basically around €1.4bn across the three segments of its Irish mortgage book, business loans, and defaulted loans.
BoI claimed a large part of this risk has already been factored into its own numbers, while neutral commentators also suggested the Central Bank was being overly penal and basing its case on industry standards rather than BoI’s individual situation; which, in loan book terms, has improved since June.
BoI noted that the Central Bank has not actually instructed it to adjust its existing provisions. It said it remains confident of maintaining a capital ratio level of 10% (despite a drop from over 14% to just under 10% in the latest assessment) and that its Irish mortgage arrears stabilised in the third quarter.
BoI is in talks with the Central Bank concerning the results of the assessment — which was a condition of Ireland’s bailout exit and will be incorporated into next year’s ECB stress tests — but said it remains confident in its existing impairment provisions.
Yesterday’s news led some commentators to suggest any preference share deal may be pushed out to the new year. If nothing is done by the end of March, the State’s holding in the bank will increase in value to €2.25bn.
Ryan McGrath of Cantor Fitzgerald said BoI’s swift and detailed response to the Central Bank’s findings suggests a preference share deal remains imminent.
He said the main finding of the Central Bank’s assessment — that no further funding was required at BoI — is the key point to note.
It is thought that the preference share deal will be announced and executed in one package, rather than in different stages, and will be undertaken within 10 days.
Bank of Ireland said it was still assessing its options.
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