The State’s investment in Bank of Ireland dates back to early 2009 when the Minister for Finance directed the National Pension Reserve Fund (“NPRF”) to make an investment of €3.5bn in preference shares issued by the bank. Subsequent to this in 2010 the State converted €1.7bn of this investment into ordinary shares and in 2011 invested another €0.2bn in equity (via the NPRF) net of a €1.05bn disposal of shares to a consortium of North American institutional investors. Finally the Minister also directly invested €1.0bn in Bank of Ireland Contingent Capital Notes (“CoCos”) in July 2011 which had a redemption date of July 2016. The total investment in Bank of Ireland was €4.7bn.
To date the State has exited both its CoCo and preference share investments at a profit and has now generated a net positive cash return from the State’s overall support for and investment in the bank. In addition, the State’s 14% equity stake in Bank of Ireland had a market value of €1.4bn at 31 December 2014.
Since the State first invested in Bank of Ireland, the SMU’s priority has been to protect this investment by ensuring it returns to profitability as quickly as possible consistent with an approach that supports the sustainable recovery in the Irish economy. At the time of its 2014 results presentation, Bank of Ireland announced a strong return to profitability for the first time since the commencement of the crisis. Lending activity in 2014 demonstrated the bank’s continued support for the Irish economy with drawdowns of €5.7bn, an increase of almost 50% on the prior year. In addition, evidence of the bank’s progress in reaching workable solutions in dealing with distressed loans could be seen with non-performing loan balances reducing by €2.8bn (16.3%) in the year and €4.0bn (21.7%) since the reported peak in June 2013.
By virtue of its different ownership position the Minister for Finance’s role and level of oversight with BOI is more limited than at AIB. Consistent with Government Policy, SMU’s role is to advise the Minister on the timing and nature of ultimately exiting the State’s remaining 14% equity stake in the bank. The State will exit its investment in the bank in a measured fashion over time and in a manner than maximises the return to the taxpayer.