Banks need €21.8bn in additional equity


IRISH BANKS need €21.8 billion in additional equity capital to cover loans that will be transferred to the National Asset Management Agency (Nama) and to meet new target capital levels set by the Financial Regulator.

This emerged yesterday as the regulator outlined the capital requirement of the five Irish institutions.

For core tier 1 capital (which includes the Government preference shares), the regulator has set a target at 8 per cent. As part of this, the equity capital ratio has been set at 7 per cent.

These levels must be met by the end of 2010.

The regulator has determined that AIB requires an additional €7.396 billion in equity capital to meet its target. The capital required to meet the core tier 1 target is €4.8 billion.

“It is expected that these amounts will be significantly reduced by capital actions we are taking,” AIB said in a statement last night.

Bank of Ireland will require €2.66 billion in equity capital, while the Irish Nationwide building society needs €2.6 billion.

EBS building society requires an additional €875 million. “EBS will seek to reduce this capital amount of €875 million through a range of programmes and strategies,” the society said last night.

In the case of Anglo Irish Bank, the regulator has not completed its prudential capital assessment review (PCAR). It added that Anglo needs €8.3 billion of capital as an “interim measure”.

The regulator also stated yesterday that Irish Life Permanent, which is not transferring loans to Nama and has not been given any State funding, will have the PCAR process applied to it over the “coming months”.

The regulator wrote to the various institutions yesterday afternoon to inform them that they must table their capital raising plans within 30 days.

At a briefing yesterday, the regulator said this additional equity could result from a mix of asset disposals, private capital raising or an injection of funds by the State.

Patrick Honohan, governor of the Central Bank, said the measures announced were not for the “benefit of the banks or their management, but are for the benefit of Irish households and businesses”.

He said the costs were “significant” but “manageable and affordable” for the State.

“They are certainly a necessary measure to put the banking crisis behind us and provide for a stronger economy,” he added.

Matthew Elderfield, head of financial regulation, said it was important to “draw a line under the Irish banking crisis”.

He said the sums drawn up followed “detailed and independent analysis” by the regulator, and involved “huge” stress testing of their business models based on them making losses for some years and based on there being potential future shocks to the Irish economy.

He said its analysis took account of “Nama and non-Nama related portfolios”.

“This is a robust, realistic and prudent capital standard informed by our own detailed analysis and by emerging best practice internationally,” Mr Elderfield added.

“Even after the surgery they [the banks] will still suffer losses in the coming years,” Mr Elderfield said. “They need a transfusion of capital now to speed their recovery and that of the economy.” He said there had been a “frank exchange of views” with the institutions in relation to their future capital requirements.

Mr Elderfield said he expected each institution to adhere to its end-2010 deadline for implementing the new capital ratio requirements. “I’m sure the board of the banks will respond positively with the targets we’ve set for them and with the deadline.”