The price of new shares in Bank of Ireland, which are set to start trading on Monday, has been set at €7.38 each, as the lender issues one stock for every 30 that investors currently hold.
The so-called reverse share split, which shrinks the bank's number of outstanding shares by 97 per cent, is part of a broader restructuring of the group, approved by shareholders in April and rubberstamped by the High Court in recent weeks.
This will see investors become shareholders in a new holding company set up at the top of the group’s organisational structure as of next week.
Both Bank of Ireland and AIB said in early February that they planned to set up holding companies to comply with European regulations being phased in over the coming years that are designed to minimise taxpayer bailouts in the event of another crisis.
These holding companies would issue equity, senior and junior debt in future where investors could face losses if banks run into difficulty. Deposits, however, would continue to be held by the existing operating banks, where they would enjoy greater protection.
Intraday volatility
Meanwhile, Cantor Fitzgerald analyst Stephen Hall said in a note to clients on Friday that the reduction of Bank of Ireland's number of shares in issue from 32.4 billion to 1.08 billion under the stock consolidation "should help reduce the intraday volatility in the stock".
He said that his 12-month share price for the new Bank of Ireland shares is €8.16, which points to 10.6 per cent upside for investors.
Bank of Ireland is currently trading at 0.85 per cent of the value at which Cantor Fitzgerald estimates the bank’s assets will be valued on its books at the end of 2017, a 11.5 per cent discount to the broader euro zone banking sector.
“We think this discount will close in due course and Bank of Ireland should positively rerate higher over the coming months,” Mr Hall said. “We have seen a sizeable move higher in European bond yields over the past week, which is a supportive backdrop for European banking stocks.”
The yield, or market interest rate on Germany’s 10-year bonds, a major European benchmark, has soared from 0.23 per cent 2½ weeks ago to almost 0.57 per cent. Rising yields help banks on two fronts: boosting income and, in many cases, easing pension deficits.
Bank of Ireland's chief executive of more than eight years, Richie Boucher, is preparing to step down at the end of this year and will be succeeded by HSBC executive Francesca McDonagh.
