IL&P must raise €145m to meet stress test targets of regulator

IRISH LIFE & Permanent will need to raise €145 million of core tier-1 capital by May to meet the stress test targets set by the financial regulator.

However, it will not be required to raise any additional capital to meet the base targets of 8 per cent core tier-1 and 7 per cent equity tier-one that are required.

The results of the prudential capital assessment review (PCAR), undertaken by the Central Bank and the financial regulator, which were published by the Central Bank yesterday, were welcomed by IL&P, which said it “confirms the robust capital strength of the group”.

IL&P will raise the €145 million internally, via a €100 million securitisation on part of its life assurance business and cash-flow from its non-banking units.

The group has to submit its recapitalisation plan to the Central Bank and the financial regulator within 30 days.

Separately, the company said it would need €925 million in fresh capital should the bank and life company separate as part of its proposal to acquire the EBS building society.

Three other interested parties, all from the private equity sphere, have also submitted bids for the building society.

A preferred bidder, or two short-listed bidders, are expected to be chosen in the next few weeks.

IL&P said it would fund the potential €925 million capital hole from internal resources, a liability buyback programme and an external capital-raising exercise.

The PCAR review of IL&P, which is not transferring loans to Nama, follows similar reviews of AIB, Bank of Ireland and EBS, the results of which were announced last March.

As with the other PCARs, the Central Bank and financial regulator analysed IL&P’s capital requirement with reference to a base case and a stress case.

The base test – which in IL&P’s case was based on assumed losses of €1.3 billion – is designed to ensure the credit institutions are sufficiently prudentially capitalised after taking account of forecast loan losses through to 2012. All capital used to meet the base case target must be principally in the form of equity.

The stress test assesses whether the institution has a sufficient capital buffer to withstand losses under an “adverse scenario”.

The stress case for IL&P was based on assumed losses of €2.2 billion.

In the case of IL&P’s assessment, the stress test scenarios carried out on EU banks in July – known as the Committee of European Banking Supervisors (CEBS) – were also applied.

Under that scenario IL&P was found to have a tier-1 ratio of 7.6 per cent at the end of 2011, €169 million in excess of the 6 per cent minimum level set by the CEBS.

The results of the PCAR and CEBS review were released just before markets closed yesterday and, as a result, had little impact on the company’s share price. IL&P closed almost 2 per cent down at €1.60.

Last month the company posted a loss of €10 million at the operating level for the first six months of 2010, compared with a loss of €51 million for the same period last year.