Consider the following medley of Bank of Ireland (BoI) facts:
(a) On 19th February, 2011 BoI is required to pay a dividend to the National Pension Reserve Fund in respect of the NPRF’s residual holding of BoI preference shares. You’ll recall that in March 2009, the NPRF invested some €3.5bn in 8% yielding BoI preference shares. In May 2010, ~€1.7bn of the preference shares were converted to ordinary shares and the interest rate on the remaining ~€1.8bn went up to 10.25% per annum. That means that on 19th February, 2011 BoI needs to pay the NPRF interest on preference shares in the amount of €214m. Last year ordinary shares were paid to the NPRF in lieu of cash because the EU had apparently decreed that banks in receipt of state-aid couldn’t pay cash dividends.
(b) Just before Christmas, BoI secured permission from the Commercial Court division of the High Court to pay cash dividends from certain capital reserves.
(c) The EC decision on 15th July, 2010 approving BoI’s restructuring still hasn’t been published – at six months, the delay seems like a record.
(d) On 28th November, 2010 our handsomely-rewarded Financial Regulator published his new capital requirements for the four non-zombified Irish banks (AIB, BoI, EBS and ILP). BoI was to raise an additional €2,199m of capital by 28th February, 2011
(e) On 17th December, 2010 BoI announced the results of a debt swap which saw a contribution of €700m to its additional capital target. This meant that the target to be reached in February 2011 fell from €2,199m to €1.5bn. (company announcement here)
(f) In October, 2010 BoI needed pay a price of 5.9% interest per annum on a 3-year State-guaranteed €750m debt issuance.
(g) BoI’s share price today is €0.34 valuing the company at some €1.8bn.
(h) The estimated NAMA haircut on BoI’s loans was put at 42% by NAMA in September 2010 and 40% by the Minister for Finance in October, 2010. This haircut compares to 60% for AIB, 67% for Anglo, 70% for INBS and 60% for EBS. I have previously suggested on here that the BoI estimated haircut looks too low.
(i) The State already owns 36.5% of BoI through its conversion of preference shares in May 2010 and its receipt of ordinary shares in lieu of cash dividend (on the then 8% preference shares) in February 2010.
So where is BoI going to find €1.5bn (€2,199m capital requirement less €700m contribution from debt swap in December 2010) in the next 54 days? Un-announced asset sales? A new share issue? And what about the dividend it needs pay the NPRF on the preference shares? And what about the NAMA haircut?
It would seem from this distance at this vantage point that the only feasible investor will be our much put-upon pension reserve. And that will mean the State takes majority control of BoI – more than 65% by my calculations which are
Existing stake in BoI – 36.5% (5.3bn ordinary shares in issue * 36.5% = 1.9bn shares)
New share issue €1.5bn at €0.34 per share – 4.4bn shares
New share holding – (1.9bn + 4.4bn)/(5.3bn + 4.4bn) = 65.3%
And of course that is before the February 2011 dividend on preference shares and any additional NAMA-haircut-causing capital requirement. And the IMF has insisted on a bottom-up review of BoI’s non-NAMA loans and off balancesheet exposures by the end of March 2011. It is hard not to see from here how BoI will avoid a fate similar to AIB’s and may well end up on Enterprise Securities Market by the middle of this year.