Bank of Ireland to sell first set of ‘bail-inable’ senior bonds

Bank of Ireland is preparing to sell a first batch of senior bonds through its holding company, which was set up last year under new European rules aimed at minimising taxpayer bailouts in the event of a future crisis.

The bank, led by chief executive Francesca McDonagh, has hired JP Morgan, a unit of Royal Bank of Scotland, Nomura and UBS to market the five-year senior unsecured debt, subject to market conditions, according to market sources.

Owen Callan, an analyst with Investec in Dublin, estimates that the bank will sell €500 million-€750 million of such notes.

Bank of Ireland established a holding company last year following consultation with the euro zone’s Single Resolution Board, which is responsible for overhauling or even winding down ailing banks in the European Union in the event of a future crisis. Debt – both junior and senior – issued by such holding companies would be “bailed in” if needed, before state support would be drawn upon.

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The holding company, which is also the group’s publicly quoted entity, sold about €750 million of junior bonds in September last year in its first debt offering.

Regulator targets

It is estimated that the group will need to issue up to €5 billion of “bail-inable” debt – or what are known as minimum requirement for own funds and eligible liabilities (MREL) – in the next few years to meet regulator targets.

Group chief financial officer Andrew Keating said the group had been given a target by authorities to have total MREL funds of €13.5 billion in place by 2021, including equity. The group had €7.2 billion of regulatory common equity Tier 1 capital on its balance sheet at the end of June, according to its latest financial report.

AIB set up a similar holding company last year and also expects to have to raise up to €5 billion of MREL funds over next few years. The establishment of such entities allow for banks to hold customer deposits in their existing operating banks, where they would enjoy greater protection in the event of a lender running into trouble.

Permanent TSB, which had already set up a holding company in 2010 when the group was known as Irish Life & Permanent, has previously indicated that it will need to raise €900 million of MREL funds by early 2021.