Bank of Ireland looks beyond "bad bank," recession
DUBLIN (Reuters) - Bank of Ireland is to raise private capital, potentially becoming the only member of an Irish "bad bank" scheme to escape a fresh bailout, as Dublin faces years of scrimping to plug the black hole created by the sector.
Shares in Bank of Ireland jumped more than 28 percent after it said Wednesday that its loan losses had peaked and it was in talks with investment banks to raise capital to make up for losses on property loan sales to the bad bank, the National Asset Management Agency (NAMA).
Ireland's biggest bank by market value will privately raise about half of the 2.7 billion euros ($3.6 billion) of the new capital it needs, while the government will convert some of its 3.5 billion euros of preference shares into ordinary equity, remaining a minority shareholder.
"Valuing Bank of Ireland shares has been problematic up to now given the range of possible outcomes," NCB analyst Ciaran Callaghan said. "But with the uncertainties clearing, the investment case is becoming more apparent."
Bank of Ireland's outlook contrasts with other NAMA participants such as nationalized Anglo Irish Bank, which will need up to 18 billion euros of fresh state capital, almost as much as Dublin borrows in a year to fund its budget deficit.
EFFORTS TO CUT
The injections into Anglo and two building societies will be in the form of promissory notes, in effect not paid for up to 15 years, which means it should not hold up Ireland's efforts to cut what is one of Europe's biggest deficits as a ratio of gross domestic product (GDP).
"But the cost of cleaning up Anglo may add 20 billion euros, about 12 percent of 2010 GDP, to government debt over 10-15 years," Davy Chief Economist Rossa White said.
The new injections contrast with other countries which are already reducing their bank shareholdings and exited recession before Ireland.
Allied Irish Banks, the second biggest bank by market value, was given some time to try and sell assets before getting a fresh bailout, boosting its shares 7 percent after heavy losses earlier in the week. Some analysts still think however it could end up 75 percent owned by the state.
Bank of Ireland is selling the first tranche of its loans to NAMA at a discount of 35 percent and said the discount on the whole 12 billion euro portfolio will be in line with its guidance at the start of the year.
It said in January it expected a discount, known as a haircut, of no more than 4.8 billion euros, or 30 percent, on a total book it then expected to be 16 billion euros.
Wednesday, it also reported an underlying loss of 1.47 billion euros for the nine months to the end of December, having shifted the end of its fiscal year to match the calendar year.
"Revenues remain under pressure, in particular due to higher funding costs, as we continue to extend the maturity profile of our wholesale funding," it said in a statement.
It confirmed its earlier forecast for impairment charges of 4.7 billion euros on its non-NAMA loans over the three years ending March 2011, with bad debt charges falling gradually in coming years.
Bank of Ireland shares rose 0.37 euros or 28.73 percent to 1.66 euros by 0936 GMT, after rising as high as 1.685 euros. The stock has bounced from a low of 0.12 euros set a year ago but languishes well below its peak of 18.83 euros seen in early 2007.
(Additional reporting by Barbara Lewis; Editing by Hans Peters, David Holmes and Sharon Lindores)
($1=.7403 Euro)