Investments and sale of shares cut State stake to 15%

THE GOVERNMENT’S stake in Bank of Ireland will more than halve to 15.1 per cent after a better-than-expected sale of shares and a €1.12 billion investment from North American fund managers who will take a 34.9 per cent stake.

The successful rights issue and private investment means that Bank of Ireland will be the only Irish bank to avoid State control.

Meanwhile, the Government in effect nationalised Irish Life and Permanent by injecting €2.7 billion into the company, taking more than 99 per cent. This followed a court order secured by the Minister for Finance approving the State’s recapitalisation.

In a separate development, the Government increased the State’s shareholding in AIB to 99.8 per cent from 93 per cent by injecting €6.6 billion into the bank.

Bank of Ireland named the US and Canadian investors led by Toronto-based insurer Fairfax Financial Holdings who took the 34.9 per cent stake in the bank.

The announcement followed the results of the rights issue in which 36.8 per cent of shareholders, excluding the Government, bought new shares.

The other investors are New York buyout firm WL Ross and Co, which is led by billionaire investor Wilbur Ross; Boston-based Fidelity Investments; Los Angeles-based Capital Group; and Californian property firm Kennedy Wilson. Bank of Ireland said they were “long-term value investors”.

Fairfax, WL Ross and Fidelity will hold the largest stakes, each taking less than 9.9 per cent of the shareholding in the bank. They are each investing about €300 million. Capital Research, part of Capital Group, holds about two-thirds of each of their holdings, while Kennedy Wilson has a small stake.

The shareholdings must be disclosed once the shares are placed, subject to regulatory approval.

Each of the shareholdings will be managed individually.

Almost 60 per cent of the bank’s shareholders, including the Government, which held a 36 per cent stake, took up shares in the cash call on shareholders.

The rights issue was more successful than expected after the sale was boosted by the private investment agreed by the Government early on Monday morning.

The State’s interest will fall to 15.1 per cent from 36 per cent after the rump of rights not taken up in the new share sale are distributed.

“They may be firesale prices, but it shows that people are willing to invest in Ireland,” said Alan McQuaid, economist at Bloxham Stockbrokers.

Dublin-based private equity firm Cardinal Capital Group will become an investor in the bank through WL Ross’s investment.

The successful private placement and rights issue was “a positive result when compared to expectation in recent weeks”, said Michael Cummins of Dublin fixed income firm Glas Securities.

Rating agency Moody’s said the investment was “positive” for the bank’s senior bondholders.

The bank is raising €2.5 billion from forcing losses on subordinated bondholders on top of the €1.91 billion raised in the rights issue to meet a higher capital bill following stress tests last March.– Additional reporting Reuters