Bank of Ireland yesterday raised €1 billion in bonds at an interest rate of 1.875 per cent a year. The new funding was secured on a pool of Irish residential mortgages.
The bank said the “high level of investor demand” for the 3½-year covered bond “strongly underlines” its ability to access funding from capital markets. More than 200 international investors participated in the issue.
The bank said the order book was oversubscribed at more than €3.6 billion. The lead investment banks on the transaction were Credit Suisse, HSBC, Lloyds Bank, Natixis and UBS.
The bank said the fundraising was a “vote of confidence” by bond investors in the group. Its shares closed up 0.8 per cent in Dublin yesterday at 26.3 cent as details of the bond issue emerged.
News of the bond issuance came on the same day officials from the EU-IMF troika were in Dublin to meet the Government in relation to Ireland's impending exit from the bailout programme.
Stress tests
This included meetings with the European Central Bank, which is preparing for a euro-area wide round of bank stress tests next year.
The results of these tests will not be known until about November 2014. It is understood the ECB believes Irish banks are currently well-capitalised.
However, this position could change next year, particularly as the ECB has yet to set the full methodology for the tests and factors such as agreeing solutions with mortgage customers in arrears could influence calculations on their capital buffers.
Regarding Permanent TSB’s issues around its large, loss-making tracker mortgage book, it is understood the ECB does not see it as a pressing problem. It believes the performance of these trackers is improving and considers it a work in progress.
There is a view within the troika that in the event of the Irish banks requiring more capital, Bank of Ireland and possibly AIB could source this from markets themselves but there are concerns that PTSB might not be able to follow this route.
This would leave the State as the only alternative source of funding.
PTSB has received €2.7 billion to date from the Government.
The ECB will be keen to ensure the stress tests are viewed as credible by markets. This means it could adopt a get-tough strategy with some of the banks in the euro area.
Mortgage arrears
The ECB is also thought to be of the view that the new insolvency legislation, which was introduced recently, could make a difference in resolving the mortgage arrears issue affecting Irish banks. It also believes some movement is finally occurring on buy-to-let mortgages in arrears. These are deemed to be easier to address in terms of repossessions or voluntary surrenders because they are owned by investors.
