Wilbur Ross & Fairfax Rescue Bank of Ireland, Sort Of... How Investors Rank (IRE, AIB)

The Bank of Ireland (NYSE: IRE) is likely going to go private.  U.S.-based WL Ross, a private equity firm, and Canada’s Fairfax Financial Holdings are each taking a stake in the bank of 9% after their investments this week.  WL Ross’s Wilbur Ross has invested in buying an Irish bank before and he was just on CNBC confirming the deal in what he called a ‘re-privatization.’

On Monday came word that the two firms paid 1.1 billion euros, or almost $1.6 billion U.S., to take a stake in the Bank of Ireland.  This keeps the bank out of full state control and the rights issue gave them a 35% stake in total.  Fidelity was listed as another investor in the rights issue.  Another form, The Capital Group, will have roughly 6% as its stake.  A smaller firm called Kennedy Wilson was named as a much smaller investor in the deal.

If all ends up as it has appeared in the rights offering, the Irish government will effectively end up with a 15% stake, down from 36%, since about 60% of shareholders subscribed to the rights issue.

What this does is to keep the Irish government from taking full control of the bank.  It looks as if Irish Life is being nationalized, and the losses at Allied Irish Banks plc (NYSE: AIB) put it in a place that would make nationalization look inevitable.

What is still unclear is what exactly happens to public holders of these shares.  The Bank of Ireland shares in Dublin are higher by 6% and the ADRs in New York are indicated higher as well.  WL Ross has invested in Ireland before and it has invested in bankrupt bank turnaround situations in the United States.

We would expect more data in the hours and days ahead, and the fate of these two ADRs.  This week was the deadline for the capitalization plans.  So far it looks like Bank of Ireland avoided becoming a subsidiary of the Irish government, but that may not be so for Allied Irish Banks plc (NYSE: AIB).

Stay tuned.

JON C. OGG