B of I borrows €2.9bn from two international banks

BANK OF Ireland has borrowed about €2.9 billion in term funding from two international banks that will be used to reduce the lender’s central bank borrowings.

The bank used UK mortgages as collateral to borrow the money for an average of 2.2 years at a spread of 2.65 percentage points over the three-month inter-bank borrowing rate. The loans, which were provided yesterday following a deal agreed at the end of June, are not covered by the Government bank guarantee.

“These trades were executed amidst a volatile market backdrop and are in line with the group’s commitments under its deleveraging plan,” the bank said.

“They demonstrate the strong quality of the assets on our balance sheet and the strength of our international relationships. The bank anticipates further secured trades later this year.”

The bank must dispose of €32 billion in loans and other assets as part of the deleveraging of the banks under the terms of the EU-IMF bailout to reduce loans from the European Central Bank.

The ECB stopped accepting sterling-denominated loans as collateral for loans at the end of last year, at which time Bank of Ireland had £28 billion (€32 billion) of UK residential mortgages.

The Government is likely to end up with a majority shareholding in the bank after a cash call of shareholders closes next Tuesday. The bank is seeking to raise €1.9 billion from shareholders in the rights issue to meet a capital target of €5.2 billion set following the bank stress tests in March.

The State, which owns 36 per cent of the bank, will provide any new shares not acquired by investors, which will increase its stake.

Some €2.5 billion is being raised from a debt buyback in which the bank is imposing losses on subordinated bondholders. A further €1 billion in contingent capital is being provided by the State.