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Deals of the Year 2018: BOI's new structure brings 1783 Royal Charter bank fully into line with ECB resolution rules    
The winning 'Deal of the Year' in the 'Financial Services - Bank Restructuring' category is Bank of Ireland's creation of a new listed holding company as part of the implementation of a single point of entry resolution strategy.
Bank of Ireland is the country's largest banking group, with significant businesses in Ireland and the UK, including operating the UK Post Office's banking services under a joint venture. Bank of Ireland was required by the Single Resolution Board (SRB) of the European Central Bank to implement a single point of entry resolution strategy, intended to allow a banking resolution of the Bank of Ireland Group in the event of a bank failure.

The structure involved putting in place a new listed holding company, Bank of Ireland Group plc, above the previous listed entity, the Governor and Company of the Bank of Ireland (GovCo). Since GovCo was incorporated by Royal Charter in 1783, it predated modern company legislation, and Irish company law had to be modified to accommodate a scheme of arrangement to implement the transaction.
Lorraine Smyth

The transaction is the first introduction of a banking holding company resolution strategy in Ireland under the SRB’s oversight and involved extensive work with both the ECB and SRB on regulatory capital treatment. The transaction also needed to ensure that Bank of Ireland retained the flexibility to pay dividends and this was arranged by the implementation of a High Court approval capital reduction in a matter of just a few weeks following completion.

In parallel with this move, BOI took the opportunity to shed itself of its 'penny stock' status by way of a stock consolidation, with shareholder approval. Under this plan investors received one share in the new listed holding company for every 30 shares previously held. This had the effect of multiplying at one stroke its share price, which stood around 23 cent in June last year, to €6.90. In reality, the share price fell to a recent low of €5.03 in October 14 2017 before rallying to peak at €8.16 on January 25 this year, its highest level since March 11 2016 (when adjusted for the consolidation).

Stephen Ranalow, Corporate M&A partner at Arthur Cox, which provided legal advice to Bank of Ireland on the restructuring, said: 'The holding company reorganisation of Bank of Ireland presented a number of unique challenges. It was the first time an Irish bank had implemented a 'single point of entry' resolution strategy mandated by the Single Resolution Board of the European Central Bank.

'It also had to be achieved within a time frame that allowed the recommencement of the payment of dividends of the Bank of Ireland and that left intact the regulatory capital treatment of the Bank. It also involved replacing the 1783 charter corporation, which pre-dated modern Irish company law, with a modern public limited company as the holding company of the Bank, which required obtaining changes to the Companies Act.

'All of his was achieved in just six months, well-ahead of the timetable schedule. The seasoned internal transaction and legal teams at Bank of Ireland were central to the success of the deal. They a level of experience in designing and implementing complex capital transaction that is unrivalled in any European bank.'

Lorraine Smyth, director - resolution strategy at Bank of Ireland said, ‘The implementation of the BOI Holding Company structure (Bank of Ireland Group plc) and the associated share consolidation was an extremely complex transaction, requiring Shareholder and High Court approval, as well as numerous regulatory approvals. The purpose of the reorganisation was to implement the preferred resolution strategy for the Group determined by its regulators, and is designed to minimise disruption to the bank and economic system in the event of a crisis. The successful implementation of the transaction ensures that the Group will be compliant with regulatory strategy, improves resolvability, provides market clarity on the resolution strategy for the Group and enhances the Group’s ability to meet MREL targets.’

Legal advisers to Bank of Ireland were Arthur Cox on Irish law, Allen & Overy on English law, Sullivan & Cromwell on US law; advisers to the sponsors were Herbert Smith Freehills; and adviser to the Irish Government was William Fry.

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