The EU Commission has requested that pending its assessment of the Bank of Ireland's restructuring plan (which is required in compliance with EU State aid rules), that the bank should suspend coupon payments on its Tier 1 and Upper Tier 2 capital securities unless under a binding legal obligation to do so.

From the Commission’s perspective, this restriction on banks which are subject to restructuring plans is intended to prevent the reduction of own funds by financial institutions which are still reliant on State aid to fulfil regulatory capital requirements.

BOI has announced that under the terms of the BOI Capital Funding (No.2) LP US$800m Fixed Rate/Variable Rate Guaranteed Non-voting Non-cumulative Perpetual Preferred Securities (LP2 Securities) and the BOI Capital Funding (No.3) LP US$400m Fixed Rate/Variable Rate Guaranteed Non-voting Non-cumulative Perpetual Preferred Securities (LP3 Securities) which both have the benefit of subordinated guarantees from the bank that the non-cumulative distribution on these securities, which would otherwise have been payable on February 01 and February 04, 2010 respectively will not now be paid.

BOI said the effect of this decision will be to trigger the “Dividend Stopper” provisions of the LP 2 Securities and LP 3 Securities. While these “Dividend Stoppers” remain in force, the bank will be precluded, for a period of one calendar year from early February 2010, from declaring and paying any distribution or dividend on its “Junior Share Capital” and on any “Parity Security”, which currently comprises the bank’s ordinary capital stock and a range of bonds.

The bank said it recognises that a longer period where there is non payment of coupons is unfavourable from the perspective of the holders of the impacted securities. In recognition of this the bank is examining the merits of further liability management subject to regulatory and other approvals. 

The Irish Times reported today that the State’s main banks have pressed developers to take advantage of an uplift in the UK property market to sell land and investment assets to recoup loans before they are sold to the National Asset Management Agency (Nama) over the coming months.

The newspaper said a number of developers have been encouraged to put land in the UK, including some prime sites in London, on the market as the banks believe they will receive a better deal than if they were to sell the loans at a discount to Nama.

Both AIB and Bank of Ireland said there was no formal strategy being pursued where they were urging developers to sell land and investment assets to recover loans before Nama.

“There is no sense that there is an overarching strategy going on,” said a spokesman for AIB.

“I don’t think there is any broad strategy,”said a Bank of Ireland spokesman. This was “normal business activity”, he said, and there was nothing to stop banks pressing customers to sell property to recoup loans as an alternative to selling them to Nama.