ANALYSIS:BANK OF Ireland kept open the slim possibility of avoiding Government control yesterday, while the State's other "pillar bank" AIB said it was likely to be going in the other direction.
Announcing the first results of its offer to buy back debt from subordinated bondholders or swap debt for shares, Bank of Ireland said it would raise at least €2 billion towards an equity capital bill of €4.2 billion set last March.
Meanwhile, AIB said it was likely the State’s stake would “increase substantially” beyond the current 93 per cent given that any shares issued to the Government would likely be at a very low price and at “a very substantial discount” to the current share price.
At Bank of Ireland, a majority of subordinated bondholders – 72.4 per cent – took up the bank’s “early bird” deal. The effect of the high take-up is that the maximum final size of the Government’s stake – currently 36 per cent – is 69 per cent, down from the 87 per cent that would have obtained if investors had declined the offer.
AIB was ordered to raise €13.3 billion – on top of the €7.2 billion already injected into it by the Government – after the Central Bank’s March stress tests.
Given the bank has a market value of €1.9 billion, AIB was always going to end up ceding a much larger stake to the State.
The bank said it expected to finalise discussions with the Government within the next week, at which point it can announce the final terms and structure of how it will raise the cash from the State.
AIB said it still expected to remain a listed company, though with a much smaller number of shares available to trade.
This means Bank of Ireland could be the only Irish bank left with a meaningful float of shares on the main Irish stock market.
Bank of Ireland is by no means out of the woods yet, but is in better shape than AIB.
The outcome of next month’s rights issue to raise the remaining €2.2 billion of its cash target will be known on July 26th. Should existing shareholders take up the new shares, the State’s stake will stay at 36 per cent. Bondholders will remain at 19 per cent.
The bank could still keep the Government’s final stake below a controlling share of 50.1 per cent.
This is likely if one of the private equity funds eyeing up the bank, such as US firm TPG, buys a stake from the Government following next month’s rights issue, which reports have suggested. Changes to the bank’s plans last weekend would facilitate this as an option.
Regarding Irish Life Permanent, Minister for Finance Michael Noonan said yesterday he favoured a trade sale of Irish Life ahead of a flotation to chip away at a €4 billion capital bill. The size of the mountain it has to climb means State control is inevitable.
Bank of Ireland is the only bank still left with a fighting chance of avoiding such a scenario. The outcome of that fight will become clearer by the end of next month.
