THE GOVERNMENT may end up owning 78 per cent of Allied Irish Banks (AIB) and 69 per cent of Bank of Ireland when the State’s “bad bank” buys property loans of €50 billion from the two banks, according to Davy stockbrokers.
Davy bases its estimates on a 20 per cent “haircut”, or discount, on loans with a book value of €30 billion on AIB’s books and a 15 per cent discount on loans valued at €20 billion on Bank of Ireland’s books. Davy estimated the banks’ combined write-downs on the loans at €9 billion, based on “economic” rather than market values.
The firm says in a report that AIB and Bank of Ireland would need additional capital of €2.7 billion and €1.5 billion respectively to reach a target 6 per cent core tier one capital ratio, a measure of a bank’s ability to absorb losses.
The estimates are also based on the two banks making a profit of €700 million buying back debt from investors, which would bolster their capital reserves, and AIB boosting its pure equity levels by €500 billion from selling assets.
The State’s National Asset Management Agency will buy loans worth €80 billion to €90 billion across the guaranteed banks and it may take majority stakes if the banks make losses due to the purchase and need more capital.
