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Citigroup has suggested that the State’s two largest banks Bank of Ireland and AIB are likely to require a combined total of almost €3 billion in extra capital due to the size of their impaired loans.
It says AIB is likely to need an extra €1.1 billion of capital but said there is concern over the Government can continue to support banks when the combined assets of AIB and Bank of Ireland would “exceed 250 per cent of gross domestic product”.
According to Citigroup while the recapitalisation has the potential to preserve shareholder interests it “fears the scale of losses could be too great”.
It has downgraded AIB to “sell” and placed a share price target of 30 cent on the stock, half its previous estimate. At 9.05am AIB shares were trading at 51 cent in Dublin up 2 per cent.
Bank of Ireland has also been downgraded to “Sell” by Citigroup which estimates the bank may need an additional €1.8 billion in capital over and above the €3.5 billion as part of the Government’s recapitalisation scheme. At 9.05am Bank of Ireland shares were trading at 29 cent, up 3.5 per cent.
It has cut its price target from €2.15 to 15 cent and said “stress testing for a three year period of high impairments and reduced pre provision profits pushes core Tier 1 ratio to 2.5 per cent”.
