BANKS:DISCUSSIONS BETWEEN the European Union-International Monetary Fund teams and the Government authorities will intensify today ahead of an announcement of an aid package of about €85 billion tomorrow.
It is expected the EU and IMF will announce a three-pronged plan to fix the banks – on top of raising capital levels to 12 per cent they will set up a pool of contingent capital which the banks can draw on if losses are worse than expected; they will agree funding to support them; and they will set out a plan to restructure and shrink the banks by directing the sale and transfer of assets.
The additional bailouts are expected to lead to the effective nationalisation of AIB and to push Bank of Ireland, which is currently 36 per cent Government-owned, into majority State control.
The rescue is aimed at reassuring investors that the banks are strong enough to borrow without Government support and that they can stand on their own.
Irish Life and Permanent is the only bank likely to escape majority State ownership. It is expected to be told that it needs €120 million to reach the new capital targets set under the rescue plan. This would bring the company up to the new core tier one capital ratio, which measures the financial strength of a bank, of 12 per cent.
Last September the company was directed to raise €145 million following a stress test by the Central Bank, bringing its capital ratio to about 10 per cent.
Under the EU-IMF plan to “over-capitalise” the banks, the company would need a further €120 million to meet the new capital targets to reassure markets that Irish banks have enough in reserve for higher losses.
Irish Life and Permanent has raised about €100 million of the original €145 million capital target by internal means and is aiming to raise the additional €120 million without resorting to a bailout from the Government.
If successful, it will be the only Irish lender to avoid a State capital injection. The company has survived without external assistance as it avoided lending to property developers and has a profitable, well-capitalised life business.
The company is among the final two bidders trying to buy building society EBS, competing with a private equity consortium led by Dublin-based Cardinal Capital Group and backed by US buyout firms Carlyle and WL Ross and Co.
Irish Life and Permanent has said it would need to raise €925 million to offload its banking division, Permanent TSB, in a merger with EBS. The company had planned to raise €700 million in a rights issue which is likely to be shelved. Among options is that Irish Life and Permanent would buy EBS and give it benefit from the capital reserves of Irish Life. However, EBS must raise €525 million to meet the Central Bank’s previous 8 per cent capital ratio and a further injection to bring its ratio up to 12 per cent.
