AIB chief says bank does not need extra capital

THE HEAD of AIB's operations in the State, a director of the bank, has said it may not need to raise additional capital, saying that banks were being banded together as if they were all the same.

Speaking at the Oireachtas Committee on Finance and the Public Service, Donal Forde, managing director of AIB, said: "We are not all the same. AIB has made it clear we don't feel we need capital."

He said additional capital would not improve the flow of credit to business and that there was "no constraint" on his business due to any capital issues.

He said the bank would try to decrease the loans-to-deposits ratio in its businesses outside Ireland by reducing lending and growing deposits overseas, while growing that ratio in Ireland by continuing to grow its lending.

He said the bank was trying to reduce its dependence on the wholesale money markets. "That can be done without any impact on the Irish business."

Mr Forde said proposed recapitalisation with funding from private equity would depend on the conditions attached to the investment and the willingness of the investors to work with the bank.

The other senior bank executive giving evidence at the committee hearing - Richie Boucher, who runs Bank of Ireland's business in the Republic - said the bank was looking to reduce the size of the bank's balance sheet but this would not affect its Irish business.

Mr Boucher said recapitalisation from private equity depended on the capital available, and the terms and conditions of the investment. He said it was also conditional on whether the investors shared the bank's strategy and also on the "investment horizon".

"The goalposts have changed in relation to the level of capital available to banks. We're competing on an international basis for liquidity and we will continue to explore forms of capital, both internally generated and externally generated," said Mr Boucher.

The Government plans to raise up to €10 billion using funds from the State, private investors and existing shareholders in the six banks to recapitalise the lenders to cover projected higher loan losses.

Any investment will be made on a "case-by-case" basis and the six lenders must submit their proposals by early next month.

Minister for Finance Brian Lenihan met Anglo Irish Bank chief executive David Drumm and chairman Sean Fitzpatrick for further talks on any possible recapitalisation yesterday. Anglo declined to comment on the meeting.

Mr Lenihan is scheduled to meet senior executives from AIB and Bank of Ireland today and the other banks later this week, in advance of the Christmas break.

Anglo Irish Bank fell the most of the four publicly quoted Irish banks yesterday, dropping 6 cent, or 16.7 per cent, to €0.30 a share.

Credit Suisse analysts estimated that Anglo would need capital of €3.5 billion, but said it was "more comfortable" that some capital could be raised following the announcement of the State's recapitalisation plan. It warned that this "could come at material cost to the equity shareholders".

Anglo notified the market that its company secretary purchased 33,324 shares at €0.38 a share on Monday on behalf of the bank's employee profit-share scheme.

Anglo's largest shareholder, fund manager Invesco, reduced its shareholding by 0.26 per cent to 6.89 per cent last Friday.

This followed a sell-off by the second-largest shareholder, Denver-based Janus Capital, which reduced its stake to 5.4 per cent from 6.78 per cent on December 4th, a day after Anglo posted a sharp drop in profits.

Bank of Ireland fell 6 per cent and AIB dropped 3.5 per cent, while Irish Life Permanent rose 2.4 per cent.