Ireland: Four Banks Need $34 Billion After New Stress Tests

Thursday, 31 Mar 2011 01:25 PM

 

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Irish regulators instructed four banks to raise 24 billion euros ($34 billion) in additional capital following stress tests on their businesses, while the government said it plans to merge two of the lenders.

Allied Irish Banks Plc, the biggest lender during the decade-long economic boom, requires 13.3 billion euros, the central bank in Dublin said today. Bank of Ireland Plc must get 5.2 billion euros, while Irish Life & Permanent Plc and EBS Building Society make up the remainder, the central bank said.

Ireland’s authorities are trying to show investors, taxpayers and the rest of the euro region that the nation has plugged all the holes in the banking system, whose collapse crippled what was once Europe’s most dynamic economy. EBS will be folded into Allied Irish, while Bank of Ireland will sell assets to focus on being a stronger domestic bank, Finance Minister Michael Noonan told the parliament in Dublin.

“We will reduce the number of domestic banks by creating two new strong universal pillar banks,” Noonan said. “We will also ensure they will be fully capitalized. Confidence in the banking system can be restored, albeit gradually.”

Irish Life will sell its life assurance and investment management units and the company said today it may pursue an initial public offering for them. Noonan said “in all likelihood” the government will end up with a majority stake in Irish Life after the restructuring.

Reliant on ECB

Ireland’s banks were reliant on the European Central Bank for 88.7 billion euros of funding at the end of last month, the Irish central bank said today. They may have borrowed as much as an additional 70.1 billion euros in exceptional liquidity from the Irish central bank, according to figures on March 11.

“Banks will be capitalized as the additional capital requirements announced today provide for future loan losses over the course of the three years on a scale that is unlikely to occur and an additional buffer for subsequent events,” Governor Patrick Honohan said in the statement.

The country was expected to have to inject 27.5 billion euros extra into the banks in total, according to a survey of 10 analysts and economists by Bloomberg News before the results.

The government currently controls four of the six domestic lenders, including Anglo Irish Bank Corp., which epitomized Ireland’s building boom and collapsed with the bursting of the property bubble and 15 percent decline in gross domestic product. Anglo Irish said today its final pretax loss was 17.7 billion euros for 2010, a record for an Irish company.

Scrapped Sale

Noonan decided yesterday to scrap the sale of state-owned EBS to a group including U.S. billionaire Wilbur Ross’s leveraged-buyout firm and Dublin-based Cardinal Capital Group. The state said in December is was acquiring 93 percent of Allied Irish, while it seized full control of EBS in May.

The main focus of this year’s assessment is on home loan portfolios after lenders were forced to sell 72.3 billion euros of risky commercial real-estate loans to the state last year at an average discount of 58 percent.

Deposits by Irish residents fell 9.8 percent in February from a year earlier, the central bank said today in Dublin. The decline was 1.8 billion euros over the month, it said.

The ECB expects Ireland to stand ready with a “backstop facility” for Irish banks, Lorenzo Bini Smaghi, an ECB executive board member, said yesterday.

© Copyright 2014 Bloomberg News. All rights reserved.

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