Davy Research |
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Bank of Ireland
(BKIR ID)
Seeks capital restructuring
16 October 2012
Emer Lang
| Closing Price: | 9c | Rating: | Neutral | 14/08/12 | Previous: | Outperform | 04/11/11 |
FACTS: Bank of Ireland has brought a petition to the Commercial Court seeking to reduce its share capital (share premium account) by €3.9bn to €1.97bn.
ANALYSIS: The reduction in capital would be matched by an increase in the bank's distributable reserves which are required to pay dividends on the remaining €1.8bn government preference shares and ultimately repay the shares. As we noted in our report 'Bank of Ireland: Road to recovery gets bumpier' issued on August 21st, if we assume that the bank repays the preference shares in full on their fifth anniversary (end-March 2014) to avoid a 25% principal step-up, our end-2014 CT1 ratio (PCAR/EBA basis) would dip to c.10%. The outstanding €1.8bn preference shares are equivalent to c.3% in CT1 terms on our forecast RWAs of €59.7bn. Our current forecasts suggest that if the bank is to repay the full amount outstanding, additional capital will be required. The latter will depend on the level of CT1 and RWAs at the time. Alternatively, the bank could choose to partially repay the preference shares, incurring a step-up on the remainder. The bank has a clear incentive to repay the shares on their fifth anniversary in March 2014 but, pending further clarity on its plans, our 2014 forecasts do not yet assume any repayment.
DAVY VIEW: The move to restructure capital by reducing the share premium account would give the bank more flexibility in relation to distributions. It has no impact on regulatory capital. The petition will be heard on November 15th.