Bank of Ireland pulls €300m bond sale amid Brexit jitters

Bank of Ireland pulled a planned sale of €300 million of junior bonds on Tuesday afternoon, disappointed by the level of demand for the debt as potential investors were rattled by speculation over Brexit amid another day of heightened political drama in the UK.

The bank and its advisers set out as European markets opened to sell the bonds, which were due to mature in 10 years' time. The notes were priced before midday to carry a coupon, or interest rate, of about 2.2 per cent, as the firms managing the deal, Citigroup, Davy, Mizuho, Nomura and UBS, secured orders to the tune of €340 million from would-be investors.

However, Bank of Ireland subsequently decided to stall the sale, concerned about how the bonds would trade afterwards, given that it had secured a low level of orders, according to a source close to the bank.

Market sources added that those involved in the transaction were particularly worried that it had attracted a number of short-term-focused investors that were likely to try to flip their holdings quickly.

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A spokesman for the bank said the decision to postpone was “in order to ensure successful execution for both issuer and investors”, declining to elaborate further.

Embarrassing

The move to mothball the deal will prove particularly embarrassing for Bank of Ireland and the firms hired to manage it, as nervousness prevailed across financial markets, with traders monitoring events in Westminster. It was widely reported on Tuesday morning that the UK was heading towards a snap election as members of the UK parliament prepared to vote on the first stage of a plan to block prime minister Boris Johnson from pursuing a no-deal Brexit.

Shares in the bank have plunged almost 29 per cent so far this year amid concerns over its direct exposure to the UK

While the political tension had served to push investors into perceived safe haven investments, such as government bonds – with Germany’s benchmark 10-year bonds falling to a record low of minus-0.74 per cent during trading on Tuesday morning – the notes Bank of Ireland was offering were at the riskier end of the market.

The so-called Tier 2 subordinated notes that the bank was seeking to sell were set to form part of its capital base, ranking below the company’s senior notes but ahead of its equity reserves.

Shares in the bank have plunged almost 29 per cent so far this year amid concerns over its direct exposure to the UK, the potential impact on the Irish economy from Brexit and as lenders across the euro zone grapple with the prospect of lower-for-longer European Central Bank rates squeezing lending margins. The UK accounts for about 40 per cent of Bank of Ireland's assets.

Lowest level

Debt ratings firm Fitch had assigned a BBB rating on Bank of Ireland's planned new bonds, the lowest level of what's considered investment-grade debt.

Fitch said that its view of Bank of Ireland’s creditworthiness “could come under pressure if the economic effect of the UK’s decision to leave the EU is particularly severe for either Ireland or the UK”, as this could hit the quality of the bank’s assets and its capital position.

However, the bank’s ratings could be upgraded as it continues to make progress on lowering its bad loans levels and if it “successfully implements its strategy to improve cost efficiency and profitability”.