Bank of Ireland fundraising to involve purchase of Government shares

Bank of Ireland is expected to publish details this morning of a fund

raising that will involve the acquisition of the Government’s €1.8 billion preference shares in the bank.

The Irish Times has learned the bank will raise more than €500 million in new equity and will use the money to purchase a portion of the preference shares.

The balance of the preference shares will then be sold to existing shareholders, it is understood.

Announcements are expected from the bank and the Department of Finance today and will come as Minister for Finance Michael Noonan travels to London to meet with investors and the media.

The preference shares date back to 2009 when the State provided a bailout to the bank.

The fundraising will bring to €4.1 billion the amount generated by the State from the financial sector over the past two years, including the €1.3 billion sale of Irish Life and the €1 billion redemption by Bank of Ireland of contingent convertible capital notes.

The latest fundraising is thought to have been the reason Bank of Ireland issued such a comprehensive statement on Monday about the balance-sheet assessments carried out recently by the Central Bank.

Bank of Ireland said the Central Bank's findings were that it needed to make additional provisions for bad loans of about €1.3 billion.

'Range of options'

The bank indicated it disagreed with this assessment

and said it was in “ongoing engagement” with the regulator on the matter.

By contrast, AIB and Permanent TSB made no comments on the Central Bank’s findings on their provisioning and stated only that they had adequate levels of capital following the assessments, which related to June 30th.

Neither Bank of Ireland nor the department would comment last night.

The preference shares have proved to be a good earner for the Government. Bank of Ireland paid a cash dividend on the shares of €188.3 million in each of the past two years and €214.5 million in 2011.

It remains to be seen when the preference shares will be redeemed from the State.

Bank of Ireland is entitled to purchase the 1.8 million preference shares, in whole or part, at €1 each before March 31st, 2014, with the consent of the Central Bank. After that date, the price rises to €1.25 a share, which would increase the total cost to the bank to €2.25 billion.