Shares in Bank of Ireland gained 4 per cent yesterday, upon news that the bank had launched a rolling share buyback programme with the purchase of 275,000 shares.
The bank bought the stock on Wednesday, paying €9.5183 per share. Bank of Ireland closed at €10.00 last night, up 40 cents on the day.
Analysts responded positively to the buyback initiative on the basis that it reduced the acquisition risk that has been weighing on the stock of late.
In a research note, Merrion Stockbrokers said the move would ease "near-term concerns" that the bank was accumulating a war chest for a large UK acquisition.
Bank of Ireland has been coming under pressure over recent months to clarify its UK strategy after a bid for Abbey National failed last year.
"A buyback should have a positive impact on investors' perceptions of Bank of Ireland management," Merrion noted.
Mr David Odlum of NCB said he expected the buyback to have a positive impact for both return on equity and earnings per share.
Bank of Ireland chief executive, Mr Mike Soden, said the rolling programme offered "clear evidence" of the bank's commitment to increasing shareholder value.
"These purchases are consistent with the bank's overall capital management strategy, which seeks to maximise capital efficiency, whilst maintaining prudent regulatory ratios and enhancing the return to shareholders," he said.
He added that further share purchases may be made, subject to market conditions and capital requirements.
The shares will be held as treasury stock, a strategy that carries tax benefits for the bank.
Bank of Ireland was last engaged in a buyback just after merger talks with Alliance & Leicester ended in 1999, when it spent €0.4 billion on its own stock.
Merrion said this suggested that while the new programme sent "the right signals" to the market, it would not remove investor concerns over longer-term UK acquisitions.
An €800 million buyback between now and 2005 would enhance Bank of Ireland's earnings per share by about 6 per cent, Merrion says. Bank of Ireland has been authorised to buy back up to 10 per cent of its stock in any one year, making this week's purchase relatively small.
