State sells €1bn investment in Bank of Ireland with €10m profit

The State sold a €1 billion investment in Bank of Ireland yesterday, having initially aimed to sell a minimum of half that.

The proceeds of the sale, which was heavily oversubscribed, will be used to pay down the national debt. This is the first time the State has recovered any of the €64 billion in public funds invested in the banks since the economy failed.

The holding in Bank of Ireland was by way of Contingent Capital Notes (Cocos), a form of investment that is converted into equity under certain conditions.

The sale received bids totalling €4.8 billion and the notes were sold at a slight premium, netting the State a profit of €10 million.

International investors

The notes were created in July 2011 and carry an annual interest rate of 10 per cent, or €100 million, which the State has already received.

They were bought by a number of international institutional investors and the sale was organised following an approach by investment banks to the Department of Finance late last year which indicated that there was sizeable investor interest in the State’s “Coco” instruments, and in particular the holding in Bank of Ireland.

In a press briefing after the sale Minister for Finance Michael Noonan said it would make people look differently at Ireland and at the Irish banks.

He said the State had a further €6.9 billion in Bank of Ireland, AIB and Permanent TSB by way of investments over and above ordinary shareholdings, and these would be sold at the appropriate time.

He said the sale marked a “fairly significant day” and noted that it came a day after the National Treasury Management Agency sold 2017 Government bonds worth €2.5 billion in a process that was also heavily oversubscribed and involved an interest rate below that being paid to the troika.

The NTMA sale on Tuesday involved a rate of 3.316 per cent, he said, which was 0.2 per cent below what Ireland is paying on its bailout funds.

US billionaire Wilbur Ross, the chairman and co-founder of WL Ross and a significant shareholder in Bank of Ireland, said the notes sale was a “major step toward the complete privatisation” of Bank of Ireland. The State owns 15 per cent of the bank’s ordinary shares, and preference shares with a value of €1.8 billion.

Positive statement

Mr Noonan said he welcomed the positive statement from such a significant investor as Mr Ross and said the State had no interest in owning banks indefinitely.

Philip O’Sullivan, chief economist with NCB Stockbrokers, said the sale of the notes was further evidence that the relationship between the State and its banks was moving from being a vicious circle to a virtuous circle.