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UPDATE 2-Bank of Ireland extends market return with debt issue
December 12, 2012 / 6:06 PM / 5 years ago

UPDATE 2-Bank of Ireland extends market return with debt issue

* First sub debt issue since Irish lenders forced losses

* Bank to pay 10 pct coupon, pricing likely on Thurs

* Irish banks inching their way towards normality-analysts

DUBLIN, Dec 12 (Reuters) - Bank of Ireland issued 250 million euros ($325 million) of 10-year subordinated debt on Wednesday as it looks to shore up its capital base and extend its return to capital markets.

Subordinated bondholders at Irish banks, including those at Bank of Ireland, were hit with losses as part of a costly sector-wide recapitalisation and the issue is the first attempt by an Irish bank to sell junior debt since.

Bank of Ireland, the only Irish lender to avoid full state control after a property crash brought the sector to the brink, paid a 10 percent coupon on the issue and said it was 3 to 4 times oversubscribed.

“Today’s trade is a significant vote of confidence by international bond investors in Bank of Ireland and Ireland. This further reflects the material progress made by the group and the economy,” the bank said in a statement.

It added that the issue further supplemented its capital position and marked another important step in its bid to achieve normalised capital markets access.

“Subordinated debt is the stuff that actually did get burnt during the crisis so it’s good in the sense that it shows people are willing to put this kind of capital into Irish banks again,” said Owen Callan, a bond dealer at Danske Bank.

“That said it probably shows that Bank of Ireland needs a little bit of an extra capital top up given the fact that they are going slower in terms of their return to profitability and with the new Basel III regulations coming down the line.”

Like all Irish lenders, Bank of Ireland is battling to return to profitability, although it said in a trading update a month ago that it was starting to benefit from lower funding costs and a steadier economy.

It also led a return of Irish lenders and state companies to capital markets last month, raising 1 billion euros through a non-state backed covered bond in a move the country’s finance minister described as a milestone for the industry.

That followed the Irish sovereign’s gradual market return from a near two-year absence after it and the banks were locked out of capital markets, forcing the state into a bailout and lenders to turn to the European Central Bank (ECB) for funding.

Bank of Ireland’s main domestic rival, state-owned Allied Irish Banks, also raised 500 million euros through a three-year covered bond issue last month.

“It shows that the Irish banks are inching their way towards full market operations but the 10 percent coupon shows that investors will still need a pretty decent return to get involved in the risky parts of the Irish banking system,” Callan added.

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