ALLIED IRISH Banks (AIB) needs to make “significant progress” on raising capital over the coming months, the bank’s managing director Colm Doherty said in an internal staff circular marking his first 100 days in charge.
Mr Doherty told AIB employees that the bank planned “self-help” options to raise capital through balance sheet management, asset and business disposals, and “potential external strategic investors”.
“We have now moved beyond the point of developing initiatives and the implementation of the capital plan is under way,” he said.
AIB is estimated to require about €4 billion in capital following the discounted sale of €23 billion in loans to the National Asset Management Agency (Nama) to reach a 6 per cent core equity ratio, the gauge of a bank’s ability to withstand losses.
“We know we need more capital. What we don’t yet know is the amount of capital we will be required to hold by the Financial Regulator and, crucially, the timeframe in which we will be required to do so,” said Mr Doherty.
“This is a vital consideration not just for the bank but also for the Irish economy.”
AIB has said the amount of new capital required depends on when its core equity ratio must be raised to the international threshold of 8 per cent. Mr Doherty has said that the bank can reach this level by the end of 2012. This ratio stood at 5 per cent at the end of last year.
The sooner it has to reach the 8 per cent ratio, the higher the likelihood AIB will be unable to raise capital privately and be forced to cede a large stake to the State.
The Financial Regulator is carrying out stress tests on the post-Nama loan books of the banks to determine the minimum capital required by financial institutions.
An announcement is expected later this month on how much new capital the banks will require.
Mr Doherty said the bank was ready to start transferring loans to Nama and that the bank expected “the loans in the first tranche of up to 10 of our customers to transfer shortly”.
“The work programme will remain intense over the coming months as we continue to effect transfers,” he told staff.
AIB had provided “comprehensive answers” to all queries raised by the EU on the bank’s restructuring plan, he said, but could not give any detail on the outcome.
Mr Doherty told staff that interest rates would increase on the bank’s “lending products” over the coming months in order for AIB to remain a viable business.
AIB would “shortly” present the final appointment on Mr Doherty’s new management team, the role of chief risk officer, to the regulator for their approval.
The bank has centralised credit underwriting, risk and policy under group chief credit officer, Joe O’Connor, “to ensure we do not repeat the mistakes which largely contributed to our present problems”, said Mr Doherty.
