Bank of Ireland transaction

The Minister for Finance, Mr. Brian Lenihan T.D., welcomed the announcement today that Bank of Ireland intends to raise €3.4 billion of equity capital. This will ensure the Bank meets the stringent capital requirements set out by the 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.  The Minister for Finance said:

“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 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.”

The Minister 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.

The Minister said:

“Bank of Ireland is the first of our financial institutions to emerge from the banking crisis.  Through NAMA, 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 today are consistent with the long-stated Government preference that private market solutions to capital rising are found and implemented. Our policies have delivered a cleaner, well-capitalised and better funded Bank of Ireland that is now in a position to provide credit to support economic recovery and new job creation.

Returns for the State

The Minister emphasised the returns to the State from this transaction:

“When this deal is complete:

  • The State will hold a valuable approximately 36.5%  share of the bank
  • The State will continue to hold approximately €1.78 billion of preference shares and these will earn a higher coupon of 10.25%
  • The State will get €491 million profit for its warrants
  • The State  will receive some €51 million in fees for conducting this deal

Welcome as these financial returns are, the most important benefit from this transaction will be the economic return that will flow from the lending commitments as I announced on the 30th March 2010. This will support the economy to return to sustainable growth.

The strongly recapitalised Bank of Ireland will now be in a position to provide credit to Irish businesses and households as the economy recovers.  The transaction agreement provides a legal basis for the credit package. Bank of Ireland’s plan, setting out how they propose to meet these targets, will be submitted to my Department by the 14th May 2010.

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. Today’s announcement is a crucial step in realising this objective.”