AIB plan to raise further €1bn in bonds

ALLIED IRISH Banks (AIB), the State’s largest bank, is planning to raise a further €1 billion in funding on its existing Government-guarantee bonds.

The bank raised €2 billion last November selling bonds insured by the Government under the bank guarantee scheme.

At that time the bank paid 65 basis points, or 0.65 of a percentage point, over the midswap benchmark rate.

The bank will raise the next €1 billion at a price of 185 basis points over the benchmark, reflecting the increase in the cost of borrowing associated with Irish bank and government debt since last year.

The six Irish guaranteed institutions have raised more than €8 billion selling Government-backed bonds. The bonds will mature before the guarantee expires in September 2010.

EBS was the last guaranteed lender to sell debt using the State guarantee when it raised €1 billion earlier this month at a cost of 200 basis points over the benchmark.

AIB chief executive Eugene Sheehy and members of the bank’s board will come under increasing pressure in the coming weeks

They will stand for re-election at the bank’s annual meeting next month amid growing unease among institutional investors.

The lender is the focus of more intense scrutiny since it agreed to raise a further €1.5 billion in capital following Government stress tests of the bank’s loan book.

The bank said last month that it was well-capitalised to withstand €8.4 billion in loan losses over three years with the €3.5 billion investment from the State.

The Government has yet to say how it will vote at the agm on May 13th when it could use its 25 per cent voting rights for the first time, if the recapitalisation plan is approved at the extraordinary general meeting earlier that day.

A spokeswoman for the bank said Mr Sheehy “continued to have the full support of the board”.

In a separate development, Central Bank governor John Hurley said the European Central Bank (ECB) may cut interest rates further.

“While the [ECB] Governing Council is never pre-committed, I cannot exclude the possibility that the council may, in a very measured way, further reduce the main policy rate,” Mr Hurley told a meeting of EU ambassadors to Ireland yesterday.

The ECB has reduced interest rates by three points to 1.25 per cent since October 2008.

AIB and the other guaranteed financial institutions may receive 25 per cent less than the face value of their loans under the Government’s plans to buy up to €90 billion in risky property assets, according to an estimate of analysts surveyed by Bloomberg.

This implies losses of €22.5 billion across the banks.

Analysts estimates for the discount that the banks face on selling loans to the National Asset Management Agency ranged from 15 per cent to 30 per cent.