BANK OF IRELAND is to press ahead with plans to raise €1.1 billion from shareholders despite waning investor confidence as the euro hit an 18-month low and stocks tumbled.
The bank announced last night it will ask shareholders to subscribe to three new shares at 55 cent each for every two they already own. The offer means that a shareholder who owns 1,000 shares will have the opportunity to buy another 1,500 for a total cost of €825.
The cash will be used to bolster the banks reserves and allow it meet losses expected over the coming year and avoid having to sell a majority stake to the Government.
The price of the rights issue is at the lower level of the range given by the bank last month. Shareholders have to approve the capital-raising next Wednesday. Bank of Ireland is the first Irish bank to try to raise capital from outside investors since the banking crisis. The success of its fundraising and a Government bond issue planned for next week will be a test of confidence in the Irish economy as fears over the euro zone resurface.
Yesterday the euro fell below $1.24, its lowest level since the collapse of Lehman Brothers in 2008. The Irish stock market closed down 4.25 per cent, while European markets were 3.5 per cent weaker. In the US the Dow Jones was down 1.5 per cent.
Fears that austerity measures attached to €750 billion emergency funding facility unveiled by the EU and IMF last weekend will undermine growth in the euro zone were responsible for the weakness. The situation was not helped by signs of growing divisions between the larger members of the single currency bloc.
German chancellor Angela Merkel said yesterday that Europe is in a “very, very serious situation” amid reports that France threatened to leave the euro during the talks that led to the setting up of the fund.
Dr Merkel's comments followed a report in El Paisthat French President Nicolas Sarkozy threatened to pull out of the euro unless Dr Merkel agreed to back the EU's bailout plan at a meeting last weekend in Brussels, citing comments Spain's prime minister José Luis Rodriguez Zapatero made at a meeting of socialist politicians.
French economy minister Christine Lagarde attempted to present a more united front yesterday saying the outcome of the agreement of the $1 trillion package to shore up the euro zone’s periphery had been “clearly noticed” by markets.