July 27, 2011 / 7:12 AM / in 8 years

REFILE-UPDATE 3-State stake in Bank of Ireland falls to 15 pct

(Refiles to add RICS)

* Government succeeds in keeping largest bank in private control

* Bank of Ireland names new investors

* New investors to hold 34.9 percent

* Rights issue take-up higher than expected

By Conor Humphries and Padraic Halpin

DUBLIN, July 27 - The Irish government’s stake in Bank of Ireland will halve to 15 percent after a successful rights issue and a 1.1 billion euro ($1.58 billion) private investment allowed the government to avoid full nationalisation of the sector.

The interest from investors is a significant boost for the government, which a few days ago had been expected to take control of Bank of Ireland , the last domestic lender outside of state ownership.

Almost 60 percent of Bank of Ireland shareholders took up shares in the lender’s rights issue, the bank said on Wednesday, a higher-than-expected result boosted by the announcement of the private investment on Monday.

Bank of Ireland on Wednesday named the investors as Canada’s Fairfax Financial Holdings , a Toronto-based insurer and investment company, Wilbur Ross’ New York buyout firm WL Ross & Co., Fidelity Investments, rival investment firm The Capital Group and real estate company Kennedy Wilson .

After the rump of the rights issue is distributed, the state’s stake will fall from 36 percent to 15.1 percent and a group of investors will own 34.9 percent, the bank said in a statement.

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

“We may still be bouncing along the bottom in terms of the broader economy, but there is room for optimism and Bank of Ireland is key to that.”

Analysts had expected a weaker take-up of the government-underwritten, 18-for-five rights issue at 10 euro cents a share after investors shelled out last year for a rights issue at 55 cents apiece.

However the bank sold a 1.1 billion euro stake to a group of investors on Monday, ensuring it would stay out of full state control and changing shareholder sentiment.

Excluding the state’s entitlement to just over one-third of the new shares, existing private shareholders subscribed to 36.8 percent of their rights.

“Most guys would have thought that figure would have been around 25 percent so maybe not all is lost in Irish banking,” one Dublin-based trader said.

Ireland has closed two of its six domestic lenders, merged another two state-controlled institutions and on Tuesday took over a fifth. It put a 70 billion euro price on drawing a line under its banking crisis after stress tests in March.

Bank of Ireland was told to raise 4.2 billion euros in additional core Tier 1 capital following the stress tests, which were required under the terms of the 85 billion euro EU-IMF bailout Ireland received last year.

As well as the 1.91 billion euros rights issue and stake sale, the bank has raised 1.96 billion euros by hitting junior bondholders with losses of up to 90 percent and expects to secure another 510 million from further burden sharing.

($1 = 0.695 Euros)

Editing by David Hulmes Editing by Greg Mahlich and David Holmes

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