IP/09/483

Brussels, 26^th March 2009

State aid: Commission approves recapitalisation of Bank of Ireland

The European Commission has approved, under EC Treaty state aid rules, an emergency recapitalisation worth €3.5 billion that the Irish authorities intend to grant to Bank of Ireland. The Commission found the measure to be in line with its Guidance Communications on state aid during the current financial crisis (see IP/08/1495 and IP/08/1901). The measure constitutes an adequate means to remedy a serious disturbance in the Irish economy and is therefore compatible with Article 87.3.b. of the EC Treaty. In particular, the measure is limited in scope, requires an adequate remuneration and provides safeguards to minimise distortions of competition.

On 11^th March 2009 the Irish authorities formally notified the Commission of their intention to recapitalise Bank of Ireland with €3.5 billion.

Due to the current financial crisis, even banks that meet the regulatory solvency ratios may experience distress and be required to reinforce their capital. In addition to difficulties caused by the global financial crisis, recent developments with regard to the sharp decrease of Bank of Ireland's shares' value increased the need to reassure the financial markets of the bank's stability

The shares to be issued will qualify as core tier 1 capital. They will produce a dividend of 8% payable annually, at the discretion of the bank and in priority to dividends on ordinary shares, with detachable warrants after five years. Dividends on the shares are payable in cash, or - if the bank is not able to pay in cash - in ordinary shares in lieu. The shares will carry 25% of the voting rights in Bank of Ireland. The bank can repurchase the shares at par during maximum five years. After that period, shares can be repurchased at 125% of par. No dividends on ordinary shares are allowed when no dividend on the shares to be issued is paid to the State. On purchase of the preference shares, the State will also receive an option to purchase 25% of the existing ordinary shares in the bank (the 'warrants'). This option may be exercised from the fifth to the tenth anniversary of the preferred shares' purchase.

The Commission concluded that the measure complies with the conditions laid down in its Guidance Communications (see IP/08/1495 and IP/08/1901). In particular, the measure meets the following criteria:

• Necessity: Bank of Ireland has an important role within the Irish financial sector and a loss of confidence could have led to a further disturbance of the financial situation and harmful spill-over effects to the economy as a whole.
• Appropriate own contribution: a remuneration of 8% per annum is consistent with the Commission's Recapitalisation Communication. The Commission also took into account that the probability of return for the State is reinforced through the possibility of combining the dividend payment in cash and ordinary shares and the existence of warrants.
• Avoidance of undue distortions of competition: the package foresees sufficient behavioural rules to prevent an abuse of the state support, e.g. prohibition of advertising of the aid, restrictions on the payment of dividends, restrictions on executives' remuneration, nomination of public interest representatives to the bank's board as well as the submission of a plan for restructuring within 6 months for the Commission's assessment and approval.

The non-confidential version of the decision will be made available under the case number N149/2009 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.