Bank of Ireland Plc, ordered by regulators to raise 2.2 billion euros ($2.9 billion) by the end of next month, is weighing plans to avoid ceding majority control to the government, two people with knowledge of the talks said.
Bank of Ireland may opt to issue a security to the government that would boost the company’s so-called regulatory capital, said one of the people, who declined to be identified because no decision has been taken. That security would only convert into ordinary stock if the bank failed at a later stage to raise the same amount in a rights offering, the person said. The plans are still at an early stage, the people said.
The government already owns 36 percent of the lender, and Finance Minister Brian Lenihan has said it will provide more capital if needed. Analysts say Bank of Ireland may struggle to raise money in a rights offering because the country’s central bank won’t complete a review of lenders’ capital and liquidity until March, after the regulator’s deadline.
“It is difficult for any investor to price the risk without a proper insight into the upcoming” capital and liquidity tests, said Michael Cummins, an analyst at Glas Securities, a Dublin-based fixed income firm.
Dan Loughrey, a spokesman for Dublin-based Bank of Ireland, declined to comment other than to reiterate that the lender “intends to generate the required capital through a combination of international capital management initiatives, supported from existing shareholders and other capital market sources.”
Spokesmen for the country’s debt agency, Finance Ministry and Central Bank also declined to comment.
The lender has held talks with a number of Middle Eastern sovereign wealth funds about a potential investment in the bank, the Sunday Business Post reported Jan. 9, without citing anyone.
Bank of Ireland reduced the amount of capital it needs to raise to meet regulatory requirements by about 700 million euros by a subordinated bond swap last month. The lender is also considering plans to convert more junior bonds into shares. That could generate an additional 200 million euros of capital.
Any capital-raising plans would have to be approved by the European Union and International Monetary Fund, which have led the country’s aid package, as well as the Irish authorities.