Dáil Éireann Debate, Thursday - 30 September 2010
17 Deputy Jack Wall asked the Minister for Finance the total State investment to date by the National Pensions Reserve Fund in Allied Irish Banks and in Bank of Ireland; the total current value of each of these investments on a market basis; and if he will make a statement on the matter. [34040/10]
View answerOn 30 March 2009, I directed the National Pensions Reserve Fund Commission to invest €3.5 billion in preference shares issued by Bank of Ireland and on 12 May 2009 I directed the Commission to invest €3.5 billion in preference shares issued by Allied Irish Banks plc (AIB). I gave these directions having consulted the Governor of the Central Bank and the Regulatory Authority and having decided that the investments were required in the public interest to prevent potential serious damage to the financial system in the State and to ensure the continued stability of that system.
These investments were in perpetual preference shares with an annual non-cumulative fixed dividend of 8% payable in cash or, in the case of non-payment by either bank of the cash dividend, ordinary shares in lieu. The preference shares could be repurchased at par up to the fifth anniversary of the issue and at 125% of face value thereafter. Warrants issued with, but detachable from, the preference shares gave an option to purchase up to 25% of the enlarged ordinary share capital of each bank (following exercise of the warrants). The warrants were exercisable at any time from the fifth to tenth anniversary of issue of the preference shares or immediately prior to any takeover or merger of the bank concerned, whichever is earlier. The number of ordinary shares which may be acquired pursuant to the exercise of the warrants was subject to anti-dilution protection in line with market norms for warrants. Accordingly, the warrants will be proportionately adjusted for any increase or decrease in the number of ordinary shares in issue resulting from a subdivision or consolidation of units of ordinary shares. The warrants will also be proportionately adjusted for any capital distributions by the bank and for certain bonus issues or rights issues by the bank.
In February and May 2010 the Fund received ordinary shares in Bank of Ireland and AIB respectively in lieu of cash as payment of the first dividend on its preference share investments. The payment was made in the form of ordinary shares as the European Commission requested that discretionary coupon payments on Tier 1 and Upper Tier 2 capital instruments in Bank of Ireland and AIB not be paid while it considered each bank's restructuring plan. The number of shares issued in each case represented the amount of the annual preference share dividend divided by the average share price in the 30 trading days prior to the date of issue.
On 25 April 2010, again having consulted the Governor of the Central Bank and the Regulatory Authority and again having decided that it was required in the public interest to prevent potential serious damage to the financial system in the State and to ensure the continued stability of that system, I issued directions to the National Pensions Reserve Fund Commission to convert part of its €3.5 billion holding of Bank of Ireland preference stock into ordinary stock as part of the capital raising exercise announced by the bank on 26 April. The details of the transaction are as follows:
Placing/ Conversion (Step 1)
The National Pensions Reserve Fund (NPRF) subscribed for 576 million units of ordinary stock. In exchange for this stock the NPRF converted 1,036 million units of preference stock at their issue price of €1.00 into ordinary stock. Warrant cancellation The NPRF received €491 million in cash in return for the cancellation of the warrants issued in conjunction with the preference stock.
Rights Issue (Step 2)
The NPRF participated in the Bank of Ireland rights issue taking up the full allocation to which it was entitled at a price of €0.55 per unit of ordinary stock. In order to exercise the rights, the NPRF converted a further 627 million units of its preference stock into ordinary stock.
Fees
The NPRF received €52 million in fees for its participation in the transaction.
Change in dividend rate on preference stock
The dividend rate on the remaining preference stock increases from 8.00% to 10.25%. The transaction involved no new investment by the NPRF in Bank of Ireland and was funded entirely via conversion of preference stock. Including the cancellation of the warrants issued in conjunction with the preference stock and fees, the NPRF received total cash income of €543m from Bank of Ireland for participation in the transaction.
The NPRF's directed investment in Bank of Ireland now consists of: 1,900 million units of ordinary stock valued at their current market price (36% of the bank's ordinary stock in issue); and 1,837 million units of preference stock held at their issue price of €1.00 paying an annual dividend of 10.25%. The NPRF's directed investment in AIB now consists of: 3,500 million units of preference shares held at their issue price of €1.00 paying an annual dividend of8.00%. 198 million ordinary shares valued at their current market price (18% of the bank's ordinary stock in issue).
The NPRF Commission will continue to publish information on the overall return on and value of the investments it holds at my direction in credit institutions in its quarterly Performance and Portfolio Updates. Finally, as the Deputy will be aware, in my statement on banking this morning, I announced the details whereby the NPRF will further support the recapitalisation of AIB as necessary. The details are set out in my reply to an earlier question today.
