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Irish Banks Need $40 Billion of New Capital, CreditSights Says

Irish Banks Need $40 Billion of New Capital, CreditSights
Allied Irish needs 9.1 billion euros, based on CreditSights’ analysis of the banks’ latest financial reports. Photographer: Jason Alden/Bloomberg

Irish banks may need as much as 30 billion euros ($40 billion) of new capital before investors will be persuaded to fund them, according to CreditSights Inc.

Allied Irish Banks Plc and Bank of Ireland, the nation’s biggest lenders, will probably have to boost their so-called core Tier 1 ratio to 15 percent from 8 percent, analyst Simon Adamson wrote in a note today. Allied Irish needs 9.1 billion euros and Bank of Ireland needs 4.5 billion euros, based on CreditSights’ analysis of the banks’ latest financial reports.

“If you really want to put the banks in a position where people are comfortable, a 15 percent core Tier 1 ratio is probably the level you’re going to need,” London-based Adamson said in an interview. “The alternative would be to have a pot of money available if needed, but at that point you might as well just put it in.”

Ireland is in talks with the European Union and the International Monetary Fund on an 85 billion-euro aid package as the authorities seek to avoid the nation’s financial crisis spreading to Portugal and Spain. Ireland’s financial system imploded after banks racked up losses when a decade-long real- estate boom ended.

Anglo Irish Bank Plc, which was nationalized last year, is slated to receive 11.4 billion euros of new capital, though its final needs will depend on what the government decides to do with the lender, Adamson wrote.

Subordinated Losses

The country is likely to resist taking full ownership of Allied Irish and Bank of Ireland. The recapitalization of Allied Irish will bring the government’s stake to “close to 100 percent,” while its 36 percent share in Bank of Ireland is likely to rise to “a significant majority,” Adamson wrote.

The banks’ subordinated debt holders may face losses, according to Adamson.

“It would be no surprise if the European Commission and the IMF tried to impose losses on holders of subordinated debt in the Irish banks,” he said.

The government may copy the template used with Anglo Irish subordinated bonds, where investors exchanged existing notes at a minimum 80 percent discount for government-guaranteed senior debt, according to Adamson’s note.

“There are few hard facts and predicting the outcome for the Irish banks is mainly speculative,” he wrote. Among the more likely outcomes is that “subordinated debt holders could suffer substantial losses in a similarly structured deal to that used for Anglo Irish.”

The government is unlikely to impose losses on senior bondholders, partly because it wants the banks to return to the markets soon, Adamson wrote.

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