Bank of Ireland normalises via Tier 2

Bank of Ireland sold its first benchmark Tier 2 offering since July 2008 in early June, a Eu750m 10 year non-call five that an official at the issuer said marked the bank’s full return to the market and its desire to move to a more normalised capital structure.

The deal is Bank of Ireland’s first public subordinated debt deal since it sold a Eu250m 10 year bullet in December 2012, and, as a benchmark transaction, shows that Bank of Ireland is “very much fully back in the subordinated debt capital market”, said Brian Kealy, head of capital management at Bank of Ireland.

“The Tier 2 in 2012 was not a benchmark but it did help us back into the capital space and was helpful when we re-marketed our Tier 2 CoCo in January 2013 and later the re-marketing of our preference shares,” he added.

The Tier 2 contingent capital (CoCo) instruments were securities placed with the Irish government as part of its bailout of Bank of Ireland, with the government selling these to private investors, in a Eu1bn three year deal, in January last year. In December 2013 the bank re-marketed Eu1.3bn of state-owned preference shares.

At 4.25%, the coupon on Bank of Ireland’s Eu750m 10NC5 issue in June was a far cry from that on the bank’s Eu250m Tier 2 in late 2012 — 10%.

“The price reflects the progress the bank has made and is a lot less painful from a profit and loss perspective, of course,” said Kealy. “We were very pleased with the pricing and the size and nature of demand, which came from a broad cross-section of investors.”

BNP Paribas, Davy, Deutsche Bank, Morgan Stanley and UBS collected more than Eu5bn of orders for the bonds from some 370 accounts, with 97% being taken up by international investors.

Bank of Ireland’s Tier 2 is part of a plan to make the bank’s capital structure more efficient to meet its regulatory objectives, according to Kealy.

“Our capital structure has been predominantly made up of common equity and a large part of our Tier 2 at the moment is supplied by the Tier 2 CoCo that matures in July 2016 and is amortising on a daily basis now, so we felt it was important to move to a more normalised structure over time as CRD IV transitions come in,” he said.

Germany and Austria were allocated 11%, Switzerland 10%, France 7%, Nordics 6%, Iberia 4%, the Benelux 3%, Ireland 3%, Asia 4%, and others 6%. Fund managers bought 60%, hedge funds 17%, insurance companies and pension funds 8%, retail investors 7%, banks 6%, and others 2%.