Banks under increasing pressure to raise capital levels

Where does everyone stand now?

AIB

The State's largest bank has consistently said it can raise capital on its own by selling assets and does not need the Government to inject capital to bolster its core tier-one capital ratio - the key measure of a bank's ability to absorb higher unexpected losses that stock market investors are closely watching.

AIB says it plans to raise this ratio to "at least 7 per cent over time" from about 6 per cent. Banks have come under increasing pressure to raise their capital levels to match levels at the British banks of more than 8 per cent.

At the end of October, AIB chief executive Eugene Sheehy said the bank would "rather die than raise equity" and later ruled out turning to shareholders for extra cash.

It can sell its 24 per cent stake in the US bank MT which should raise €1.2 billion. The bank needs more than €2 billion in fresh capital to bring it up to British levels.

BANK OF IRELAND

The bank needs between €2 billion and €2.5 billion to recapitalise and has engaged in talks with four private equity groups, including US firms Texas Pacific and Kohlberg Kravis Roberts. It has also had discussions with the Mallabraca consortium which is led by Irish fund managers and includes US private equity firms JC Flowers and The Carlyle Group. It has opposed an investment by private equity firms, preferring a State investment instead, though some senior executives have encouraged a private investment.

ANGLO IRISH BANK

The collapse of Anglo Irish Bank's shares since it reported a dramatic increase in projected loan losses and a sharp fall in profits on December 3rd have brought its financial stability into question, particularly given Anglo's heavy exposure to faltering property markets.

The bank's heavy share decline put it at the centre of discussions among Government officials over the weekend. Anglo had asked the Government to underwrite a rights issue where fresh shares are offered in an effort to raise more capital. It needs more than €2 billion in fresh capital to bring its core tier-one capital ratio up to British levels.

IRISH LIFE PERMANENT

The State's largest mortgage lender and life insurance company has strong capital levels but has a funding problem as it relies more heavily than any other Irish lender on the wholesale money markets.

The company is likely to seek a guarantee on bonds beyond the expiry of the two-year State guarantee in September 2010, though an injection of further capital from the State will help its financial strength so it can raise this money on its own.

A possible merger with EBS building society is being interpreted as a defensive move against a private equity firm taking control of the company through a possible merger with Bank of Ireland, where Irish Life Permanent would lose its independence.

EBS BUILDING SOCIETY

EBS building society, one of the smaller guaranteed institutions, needs an estimated €300 million in fresh capital to protect itself against high future losses on loans.

A merger with Irish Life Permanent would give it some shelter. A capital injection from the State and outside investors would also help and an additional guarantee to raise loans for longer-term funding would also allow both to strengthen themselves.

The Government appears keen that a mutual building society, like EBS, remains in place. EBS has had contacts with Irish savings bank Postbank, the joint venture between An Post and French bank BNP Paribas, about a possible alliance, though it remains unclear whether BNP, which owns 50 per cent of Postbank, is interested.

IRISH NATIONWIDE

The building society has asked to remain independent, though the Government has pressed Irish Nationwide to find a suitor. Contacts have been made between the building society and Irish Life Permanent, though these were purely exploratory. Talks on an Irish Life Permanent and EBS merger are more advanced.

Irish Nationwide's heavy exposure to speculative property and development raises questions about future losses on these loans.

PRIVATE EQUITY

Private investors will now assess the €10 billion recapitalisation plan. The Mallabraca consortium is not keen on an industry-wide investment in the Irish banking sector and is targeting a stake in Bank of Ireland in the first instance and then an investment in a merged entity involving the bank and Irish Life Permanent.

A group of Irish fund management firms, linked to the Irish banks and also existing shareholders in the financial institutions, has said it has the potential to access €5 billion to €6 billion for the banks as long as this is matched by the Government.