Financial Regulatory Forum

HIGHLIGHTS – Key points of Ireland’s bank rescue

By Reuters Staff
March 30, 2010

DUBLIN, March 30 (Reuters) – Ireland’s finance minister, its “bad bank” and its financial regulator made a series of announcements on Tuesday clarifying details of how it plans to tackle the country’s banking crisis.

Here are the highlights.

* Bad bank clarity

Ireland’s “bad bank”, the National Asset Management Agency (NAMA), said it would buy a first batch of loans with a nominal value of 16 billion euros ($21.6 billion) for 8.5 billion euros, representing an average discount of 47 percent.

It said it had completed the transfer of a first tranche of loans from two building societies EBS Building Society and Irish Nationwide Building Society.

It said it expected to complete the transfer of loans from all five affected institutions — Bank of Ireland, Allied Irish Banks, Anglo Irish Bank and the two building societies by the end of the year and no later than end February 2011, the deadline set by the EU Commission.

* Capital requirements

The regulator said banks must attain a level of 8 percent of core Tier 1 capital by the end of the year. It said the level of capital must be met after taking account of all future losses and would be principally in the form of equity, a 7 percent equity requirement.

The new requirements also mean banks cannot go below a level of 4 percent core Tier 1 capital in a severely stressed scenario.

* Breakdown by banks and institutions

Bank of Ireland

Ireland’s largest bank by market capitalisation needs to find 2.66 billion euros of equity capital to meet a base target of 7 percent equity, the regulator said.

It will move 1.93 billion euros to NAMA from a total of 12 billion in the first tranche of transfers, a discount of 35 percent.

Finance Minister Brian Lenihan said the Bank of Ireland expects to raise capital privately and is well advanced in the process.

Lenihan added the state will remain a minority shareholder in the bank but will convert part of its 25 percent of preference shares in the lender.

Allied Irish Banks

Ireland’s second largest bank by market value needs to raise 7.4 billion euros of fresh capital before taking account of any asset disposals to meet new capital requirements.

It will move 3.29 billion euros to NAMA from a total of 23 billion euros in the first tranche of transfers, a discount of 43 percent.

Ireland’s finance minister said AIB will raise capital by disposing of overseas assets and will start selling assets in the United States, Poland and Britain.

Lenihan said the state could become a majority shareholder in AIB and will convert some or all of its 25 percent worth of preference shares. It could also provide it with additional equity from the national pension fund.

Anglo Irish Bank

As an interim measure, the nationalised lender will require an additional 8.3 billion of capital to meet current minimum capital requirements,” the regulator said.

It will move 10 billion euros to NAMA from a total of 36 billion euros in the first tranche of transfers, a discount of about 50 percent.

The finance minister is to provide 8.3 billion euros this week and the bank may need a further 10 billion euros over time.

EBS Building Society

EBS will need an additional 875 million of core Tier 1 capital to meet the base case target of 8 percent core Tier 1. It will move 140 million euros to NAMA from a total of 1 billion in the first tranche of transfers, a discount of 37 percent.

The finance minister said the state will have full economic ownership of EBS.

Irish Nationwide Building Society

The regulator has estimated the capital shortfall to meet current minimum capital requirements at 2.6 billion and it must comply with this minimum requirement on an ongoing basis.

It will move 670 million euros to NAMA from a total of 9 billion in the first tranche of transfers, a discount of 58 percent.

The finance minister said the state will control Irish Nationwide and will seek to secure a swift sale or merger of the building society.

Irish Life & Permanent

Irish Life was not included in the first wave of prudential capital assessment review as it has not received a government capital injection and is not taking part in NAMA.

Irish Life said it expects its current capital resources are sufficient to withstand the anticipated base case.

(Compiled by Padraic Halpin; Editing by David Holmes) ($1=.7403 Euro) ((padraic.halpin@reuters.com; Reuters Messaging: padraic.halpin.reuters.com@reuters.net; +353 1 500 1504))

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