Direction order in relation to Allied Irish Banks under the Credit Institutions (Stabilisation) Act 2010.
Following an application by the Minister for Finance earlier today, the High Court has issued a Direction Order in relation to Allied Irish Banks plc under the Credit Institutions (Stabilisation) Act 2010. The Minister, having consulted with the Governor of the Central Bank, deemed this Direction Order necessary to ensure that AIB meets the year-end regulatory capital requirements set by the Central Bank of Ireland.
The Minister said:
“The order allows the Minister to provide capital so as to ensure AIB meets its year-end capital requirement as set by the Central Bank. This capital is essential to allow AIB to fulfil its role in supporting the Irish economy.
“The possibility of State capital being provided to allow AIB meet its year-end capital requirements was set out in my statement on March 30th, 2010. The provision of this capital support will be in accordance with the terms set out on March 30th with the State taking ordinary equity in return for the investment.
“AIB has raised a significant amount of capital from its own resources. However, further State assistance has proven necessary given the level of losses that have materialised on its Nama bound loan book and also due to the international expectation for higher capital ratios.
“The Government’s provision of support to AIB is in accordance with the Joint EU IMF Programme. The Joint Programme is an intensification of the measures already taken by the Government.”
DIRECTION ORDER
Under the agreement AIB is to issue to the NPRFC [National Pension Reserve Fund Commission]: 675,107,845 Ordinary Shares of €0.32 each; 10,489,899,564 convertible non-voting shares of €0.32 (the “CNV Shares”); €52.5 million for the cancellation of warrants which related to the 2009 recapitalisation.
There will be a net payment of approximately €3.7 billion in cash from the NPRFC. This transaction with the NPRFC is to proceed to completion as soon as possible.
The CNV Shares will rank equally with the Ordinary Shares, other than in respect of voting, and will be convertible into Ordinary Shares on a one-for-one basis. The CNV Shares are being issued in order to facilitate the ongoing disposal of AIB’s Polish interests, which is part of AIB’s planned disposal programme announced on March 30th, 2010.
Following completion of the Polish disposal, the NPRFC intends to increase its holding in AIB’s ordinary shares by converting all of the CNV Shares into Ordinary Shares.
As a result of the actions announced today, AIB will meet its year end capital requirement as set out by the Central Bank.
The State will hold 49.9 per cent of the ordinary share capital of AIB – post the conversion of the CNV shares it is envisaged that this would increase to approximately 92.8 per cent.
The capital increase is structured in this way in order to facilitate the ongoing disposal of AIB’s Polish interests. Following completion of the sale of AIB’s Polish interests, the CNV shares will be converted into ordinary shares.
The High Court has directed under the Direction Order that AIB is to apply to cancel its listing of ordinary shares on the Main Securities Market of the Irish
Stock Exchange (ISE) and to apply for listing on the Enterprise Securities Market (ESM) of the Irish Stock Exchange. This is to ensure that shareholders retain access to a public trading facility for their shares. Shareholders’ ownership of, and rights over, the existing ordinary shares will be unaffected by this move.
The High Court has further directed AIB to cancel the admission of its ordinary shares to the Official List maintained by the UK Financial Services Authority and to cancel trading on the main market of the London Stock Exchange.
The High Court has also directed AIB to complete the sale of its Polish interests to Banco Santander pursuant to the Share Purchase Agreement dated September 10th, 2010, when all the regulatory conditions, other than the approval of AIB’s shareholders, have been satisfied.
Following the equity issue made pursuant to the Direction Order, AIB will be required to raise a further €6.1 billion of Core Tier 1 capital prior to February 28th, 2011, in order to comply with the revised regulatory capital requirements announced by the Central Bank on November 28th, 2010. It is also anticipated that, prior to February 28th, 2011, subject to receipt of appropriate authorities, the
NPRFC will convert up to €3.5 billion of its existing 2009 Preference Shares into Ordinary Shares or CNV Shares at a price of €0.342 per share.
OTHER FINANCIAL INSTITUTIONS
The Preamble to the Credit Institutions (Stabilisation) Act, 2010 highlights the desirability of promoting and facilitating investment by persons other than the State in credit institutions to reduce their reliance on State support. In that context the Minister welcomes that both Bank of Ireland and Irish Life Permanent intend to meet the new 12 per cent Core Tier 1 capital target announced by the Central Bank on November 28th, 2010, from their own resources and from the private market.
This has not proved possible in the case of Allied Irish Banks which has given rise to requirement for the Minister to take this course of action today.
December 23rd, 2010