Bank of Ireland to shrink number of shares by 97%

Bank of Ireland unveiled plans on Friday to shrink its number of shares in circulation by almost 97 per cent as it progressed proposals to set up a new holding company to comply with incoming European banking rules.

The Dublin-based lender, which has 32.36 billion shares outstanding following taxpayer bailouts and share sales in the market during and after the financial crisis, plans to give existing shareholders one unit of ordinary stock for every 30 they hold.

Based on the stock’s current price at 23.5 cents, the new shares would be worth about €7.05 each. The share consolidation, or reverse share split, will have no impact on the stakes that investors hold in the bank.

Bank of Ireland, where chief executive Richie Boucher plans to step down later this year after more than eight years at the helm, announced the plan as it filed an application to the High Court to establish a new Irish-incorporated group holding company.

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Holding companies

Both Bank of Ireland and AIB revealed in early February that they aimed to set up holding companies at the top of their corporate structures to comply with European regulations being phased in over the coming years that are designed to minimise taxpayer losses 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 in the existing operating banks, where they would enjoy greater protection.

While Irish banks imposed €15 billion of losses on junior bondholders during the financial crisis, they were unable to "bail in" or "burn" senior bondholders because of European Central Bank opposition and as these debt investors enjoyed the same status as depositors.

Debt research firm CreditSights estimates that the new holding companies at Bank of Ireland and AIB will have to sell €15 billion of bonds that can be “bailed in” if needed. However, they are expected to buy back existing junior debt in their operating companies at the earliest opportunity.