Joanna Tuffy (Dublin Mid West, Labour)
Link to this: Individually | In context

Question 94: To ask the Minister for Finance the mechanism and terms for the conversion of preference shares in banks (details supplied) held by the National Pensions Reserve Fund to ordinary shares; the outcome to the warrants in the case of such a conversion; the steps that would be taken to protect the warrants from devaluation as a result of dilution; and if he will make a statement on the matter. [17225/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

Outlined in the terms of the 2009 recapitalisation of Bank of Ireland and Allied Irish Banks, was a provision that the State's Preference shares could be redeemed by the banks from distributable profits and/or the proceeds of an issue of shares constituting core tier 1 capital. Such a transaction would of course be contingent on approval by the Financial Regulator. There is no provision in the preference shares for their conversion into ordinary shares and any arrangement to convert them would have to be negotiated between the State and the relevant bank. This would include the treatment of the warrants in the case of such a conversion.

On Monday 26th April, Bank of Ireland announced a €3.4 billion capital raising exercise. As part of this transaction the State has agreed to convert some €1.7 billion of its Preference shares into Ordinary Shares at face value or par. The State has also agreed to sell its warrants back to the bank for a net €491m in cash. This represents the profit generated on the investment over the past year. The coupon on the remaining preference shares is also increasing from 8% to 10.25%.

As regards Allied Irish Banks, it is currently preparing a capital plan for the Financial Regulator. Once this plan is complete we will have a better indication of the capital raising options open to the bank. As I have outlined previously the State is willing to convert some or all of its Preference Shares, as required, on terms to be agreed that will provide full value for the taxpayer. Post receipt of this plan we will also be in a better position to assess if a buy back proposal for the warrants will be appropriate.