Lenihan to outline details of financial sector overhaul

 

Minister for Finance Brian Lenihan will tomorrow announce a fundamental restructuring of the financial sector, including a further recapitalisation programme for the two main banks, which he insists will draw a line under the banking crisis “once and for all”.

The Government is tonight finalising details with the Financial Regulator and the National Treasury Management Agency (NTMA) on a series of co-ordinated announcements that will lead to the State taking far greater ownership of the banking sector.

The capital required by the banks will be determined by the losses on the loans moving to the National Asset Management Agency (Nama), the Financial Regulator’s assessment of losses on non-Nama loans and the new thresholds set by the regulator on the minimum capital the banks must hold by the end of this year.

The three issues will be addressed tomorrow in statements from Nama, the regulator and Mr Lenihan in what is being billed as one of the most important days in Irish financial history.

The first loans will start to transfer to Nama tomorrow, with Irish Nationwide and EBS moving loans linked to the top 10 developers, followed by Bank of Ireland later in the week.

Speaking this afternoon, Mr Lenihan said he would announce a “strong recapitalisation” programme for the banks.

His comments came as shares in the two main banks slumped on the Dublin market on fears that the State planned to more than double its current stake in the banks in an effort to shore up the sector.

AIB's stock closed down 19.6 per cent at €1.37, with more than 9 million shares traded.

Weekend reports indicate that the discount applied to the loans transferred to Nama will come in higher than initially estimated. Goodbody is forecasting a 35 per cent haircut at AIB on its full Nama portfolio, but there is the possibility of a discount of more than 40 per cent on the initial €3 billion tranche.

Bank of Ireland shares closed 10.4 per cent lower at €1.24 with more than 6.7 million shares traded. Goodbody said it was expecting a 30 per cent haircut on its €12 billion of Nama-bound loans, but could be as much as 35 per cent on its first €2 billion tranche.

"Given these are the most distressed borrowers, the initial haircut was always going to be the highest, as we mentioned a number of times last week," analyst Eamonn Hughes said.

The regulator is expected to force institutions to raise their core equity tier-one ratios – the gauge of the most loss-absorbing capital – to 7 per cent and core tier-one ratios to 8 per cent by the end of this year.

AIB said it was in discussions with the Financial Regulator to agree its capital requirements and would issue an update when the talks were completed.

"The combination of factors could see Government owning 40 per cent of Bank of Ireland and over 70 per cent of AIB as the Government converts preference shares to bolster the capital strength of both banks, according to reports," Bloxham stockbrokers said in a research note.

Estimates indicate the bill for further capital at AIB, Bank of Ireland, nationalised Anglo Irish Bank, and the EBS and Irish Nationwide could be more than €16 billion.

EBS said today it has been granted a derogation until May 31st of its requirement to have a Core Tier 1 capital ratio of 4 per cent due to its transfer of assets to Nama.

The lender is in talks on capital provision with the Minister for Finance, it said.

The State already has a 16 per cent stake in Bank of Ireland, a 25 per cent indirect stake in AIB and full ownership of Anglo.

The recapitalisation plan would dilute shareholders’ investments in both AIB and Bank of Ireland.

"This would clearly be an unwelcome development for existing shareholders and stands in stark contrast to management's preferred self-help strategy aimed at avoiding government control, communicated at the recent results stage," said Davy's Emer Lang.