MINISTER FOR Finance Brian Lenihan will announce on Tuesday the capital required across the five lenders participating in the National Asset Management Agency (Nama) and the full scale of State ownership in the two main banks, AIB and Bank of Ireland.
The final bill for further capital facing the five institutions could be as much as €16 billion, although part could be raised privately.
The recapitalisation of the banks will be determined by the losses taken on Nama loans, the Financial Regulator’s estimate of stress-case losses on non-Nama loans, and the ability of the two big banks to raise private capital.
The regulator is expected to base the final cash injections required on the banks’ ability to reach a core equity ratio of 7 per cent – a measure of loss-absorbing capital – by the end of this year.
The capital shortfall left after the Nama losses and estimated non-Nama loan losses will be met by the Government after the regulator’s assessment of how much the banks can raise privately.
The State may end up taking a larger minority share in BoI and a majority stake in AIB to reach the 7 per cent ratio if the regulator and Government view the capital requirements for each as being too large and that they cannot raise sufficient capital on their own.
AIB would require about €3.4 billion and Bank of Ireland about €1.7 billion to reach 7 per cent core equity ratio, according to banking analyst Sebastian Orsi at Merrion Stockbrokers.
Next week will mark one of the most momentous weeks for the Irish banking sector as a series of choreographed announcements will reveal the full scale of State ownership in the banking sector.
“We are into the endgame now,” said another analyst.
Nama will make an announcement after the stock market closes on Monday, saying that it has bought the first loans from Irish Nationwide and EBS, which are transferring about €900 million and €150 million respectively in the initial transfers linked to the top 10 borrowers. The building societies will require at least €2.4 billion in additional capital.
Then on Tuesday morning Bank of Ireland will announce the discount to be applied to about €2.2 billion in loans linked to the top borrowers, though the loans are not expected to be transferred to Nama until the end of next week.
The bank’s announcement will coincide with the publication of its financial results for the nine months to the end of last year.
Later on Tuesday Mr Lenihan will outline to the Dáil the capital required at AIB, Bank of Ireland, Irish Nationwide and EBS to fill the holes created by the Nama losses and meet estimated stress-case losses on non-Nama loans.
The State has already invested €11 billion in AIB, Bank of Ireland and Anglo Irish. It has a 25 per cent indirect stake in AIB, a 15.7 per cent direct stake in Bank of Ireland and full ownership of Anglo.
The chief executive of Anglo, Mike Aynsley, told The Irish Times this week that the bank would require as much as €9 billion in additional capital from the State.
The loan transfers to Nama will now take place on a more staggered approach than planned. The agency had hoped to transfer the first €17 billion – out of a total of €81 billion in Nama-bound loans – by the end of this month.
AIB is this weekend receiving acquisition schedules showing the discount applied to about €3 billion in loans which will be transferred next weekend. Anglo will transfer almost €10 billion in loans the following week after unveiling financial results on Wednesday.
The discount facing Bank of Ireland on the first loans will be higher than expected, in the range of 35 to 40 per cent, though the average on all of its Nama loans may end up at about 35 per cent.
Irish Nationwide and Bank of Ireland have queried the discounts on some loans, providing evidence of better security backing them to reduce the discount to be applied.
