I propose to take Questions Nos. 40, 55 and 61 together.
As announced by my Department last week the State was successful in disposing of its entire €1 billion holding of Contingent Capital Notes (CCN’s) in Bank of Ireland. The transaction followed an initial approach by a number of investment banks to the Department late last year which indicated that there was sizeable investor interest in the State’s CCN instruments and particularly the holding in Bank of Ireland. The Sale was managed by officials in the Department’s Shareholder Management Unit, with many years’ experience working in financial markets and was not only timed to take advantage of the improving sentiment towards Ireland and its banks but the huge rally seen in international debt markets which has continued into 2013.
The transaction when announced saw the State presented with the opportunity to dispose of a minimum of €500 million of its position at a price of par. This stemmed from an underwriting commitment provided by the consortium of banks – UBS, Deutsche Bank and Davy – having done a preliminary assessment of market appetite for the notes. In the end the book build process generated significant excess demand to enable the State to dispose of its entire holding in the CCN’s at a price of 101% of their par value plus accrued interest. This generated a profit for the State of €10 million. Taking account of the coupon paid to the State last year, the taxpayer has earned a total return of over 15% in the space of 18 months.
My officials had full visibility during the book build and pricing phases and were also provided with some valuation advice from NCB Stockbrokers which helped inform their judgement. The transaction was well received in the market and indeed the CCN’s traded a few points higher in the after-market during their first few days of trading. This reflects a market recognition of a very successful transaction for Ireland, one in which we have exited this element of support to our banks with a profit. It points to a recognition that Ireland is successfully working to correct the very deep failings that have affected us in the past number of years. In recognising this, however, we must also acknowledge that this after market price is for a very small volume of stock compared with the €1billion size of the transaction.
The transaction settled on Tuesday the 15th of January and the State was paid proceeds of just over €1,056 million, comprising the nominal principal amount of €1,000 million, interest accrued of over €46 million covering the period 29th July 2012 to the disposal date, and a profit of €10 million.
Further details regarding the CCN’s can be found in Bank of Ireland’s 2011 Annual Report, including information relating to its’ accounting treatment. At the end of 2011, the bank recorded the CCN’s in its accounts at a fair (or book) value of €926m.
