IRISH BANKS will require up to €22 billion to cover losses on property loans moving to the National Asset Management Agency (Nama) and higher future losses on other loans as they meet strict new rules set by the Financial Regulator, The Irish Timeshas learned.
However, not all of this requirement will involve direct investments from the State, sources close to the process stressed. Some of the money will come from asset sales by the financial institutions.
The State will also convert some of its existing €7 billion indirect investments in the State’s two largest banks, Allied Irish Banks (AIB) and Bank of Ireland, into direct stakes.
This will dilute the investments of existing shareholders and possibly lead to the State taking majority ownership of AIB and a minority shareholding in Bank of Ireland.
AIB requires some €6 billion to €7 billion, while Bank of Ireland will need €2.5 billion to €3 billion.
Irish Nationwide will require well in excess of the €2 billion it had first estimated and possibly close to €3 billion, while rival building society EBS is expected to need between €750 million and €850 million.
Both building societies will end up in effective State control as they are relying solely on the Government for investment to keep them afloat.
State-owned Anglo Irish Bank has said it will need an additional €6 billion to €9 billion, on top of €4 billion already invested by taxpayers.
On the eve of today’s series of major announcements on the future of five key financial institutions, Minister for Finance Brian Lenihan said Nama had allowed the Government to quantify the “black holes” at the banks caused by toxic property loans.
He said he would unveil a recapitalisation plan for the banks today that would draw a line under the financial crisis “once and for all”.
Fianna Fáil TD Ned O’Keeffe criticised Mr Lenihan, saying that Nama would not work and would destroy the banking system. He argued that AIB should remain in private hands.
AIB’s capital requirement is far higher than previously thought, reflecting a higher discount being applied to its loans moving into Nama and the stress tests applied to the bank’s remaining loans.
The regulator will demand that the banks meet a core equity ratio of 7 per cent by the end of this year, undermining AIB’s “self-help” options to raise cash from shareholders or outside investors, or by selling its foreign businesses.
The higher ratio, which boosts the banks’ most loss-absorbing capital buffers, is being applied across the Irish-owned banks as the regulator forces them to set aside more cash to cover likely and stress-case losses.
Details of the recapitalisation of the banks will be announced this evening in the Dáil by Mr Lenihan.
Nama will release details of the discounts on the first loans transferred from the institutions before the Minister’s statement.
Irish Nationwide and EBS will transfer the first loans today.
The regulator waived capital rules for EBS, allowing it to incur losses on transferring Nama loans this week and to fall below the minimum capital levels until May 31st.
Nama’s statement will be followed by a statement from the regulator detailing new capital rules.
AIB will move €23 billion in loans to Nama, of which about €3 billion will be in the first tranche of loans owing by the 10 biggest borrowers.
A discount of 40-50 per cent is expected to be applied to the bank’s first loans moving to Nama. The discount on the first loans from Bank of Ireland and EBS will be about 35 per cent, while Irish Nationwide will face a discount of up to 60 per cent. Shares in the two big banks fell sharply following reports that the State could take a stake of more than 70 per cent stake in AIB and 40 per cent of Bank of Ireland following the recapitalisation.
Bank of Ireland will try to keep the State’s stake below 40 per cent by raising cash from shareholders and another restructuring of its debts.
The State owns all of Anglo Irish, has an indirect stake of 25 per cent in AIB and an effective stake of 34 per cent in Bank of Ireland.
The final figures relating to the recapitalisation and the Nama loan discounts were being worked on last night between the Government, the institutions, the regulator, Nama and the National Treasury Management Agency, which is leading the recapitalisation programme for the State.
AIB yesterday raised its variable mortgage interest rates in a well-flagged move, saying it was no longer sustainable for the bank to continue losing money on its home loans.
The half-point increase on AIB’s standard variable rate, which has risen to 2.75 per cent, will add €78 a month on a €300,000 mortgage with a term of 30 years.
Mr Lenihan said that the move was necessary due to the bank’s cost of funding. “It’s yet another example of why we have to put our banks into the right shape. And that’s what tomorrow’s announcement is about.”