Bank of Ireland raises €2bn through State-insured bonds

BANK OF Ireland became the second Irish bank to raise money from investors through the sale of Government-insured bonds using the State's bank guarantee.

The bank raised €2 billion of long-term funding through a debt issue of bonds guaranteed until September 3rd, 2010, just weeks before the State two-year guarantee expires.

This follows a similar-sized debt issue last Thursday by AIB, which was the first bank to raise money using the guarantee.

The four remaining guaranteed Irish-owned banks and building societies are expected to follow the two main banks in a planned sequence of bond sales that will allow each Irish institution to tap the funding markets in turn.

The banks have agreed not to raise more than €2.5 billion in any single bond sale in the sequence to ensure each bank has an opportunity to access longer-term funding to cover existing outgoings.

The Government raised €4 billion through State bond sales earlier this month before the banks started approaching international investors with a view to subscribing to guaranteed bonds.

Bank of Ireland's debt issue was over-subscribed, with orders of up to almost €3.5 billion from investors within three hours of issue.

Investors from 21 countries across Europe and the Middle East participated in the sale.

Almost a quarter are from Ireland, 17 per cent are from the UK, 16 per cent from France and 10 per cent from Germany and Austria.

Some 47 per cent of the bonds were sold to banks and treasuries, 26 per cent to fund managers, 11 per cent to central banks, 6 per cent to insurance companies. The remaining 10 per cent was issued to other institutional buyers.

"This transaction demonstrates Bank of Ireland's access to term wholesale funding markets throughout the current market turmoil," said the bank in a statement, adding that it was an "extremely successful transaction in a volatile market backdrop".

The bank is paying 65 basis points, or 0.65 per cent, over mid-swaps - the base cost used to price bonds in the debt markets. This is almost 12 times the spread paid by France earlier this month for three-year funding for loans to the country's banks. It compares with 0.55 per cent over mid-swaps that AIB paid for the money raised from 125 investors last week.

BNP Paribas, Deutsche Bank, DZ Bank and Morgan Stanley managed the sale. The bank's bonds were ranked at the equivalent of the top AAA rating by rating agencies Moody's and Standard Poor's as a result of the Government guaranteeing the bank debt.