ALLIED IRISH Banks (AIB), the State’s largest bank, faces the prospect of majority State ownership to fill a larger than expected capital hole of at least €7.4 billion identified by the Government and Financial Regulator at the lender.
Nama applied a discount of 43 per cent on the first €3.3 billion loans moving from the bank – well above the consensus 35 per cent estimate by analysts.
The bank has been given until the end of the year to raise sufficient capital from private means or else cede a significant majority stake to the Government.
Minister for Finance Brian Lenihan said the bank would need “at least” €7.4 billion. The bank would immediately start selling its overseas assets – its UK business, its 25 per cent share in US bank MT and Bank Zachodni WBK in Poland, all to be disposed of before the end of the year.
Analysts estimate that the assets could raise between €4 billion and €4.5 billion in capital.
“The disposal proceeds will provide sufficient capital, but it will not be sufficient to address the full requirement,” said Mr Lenihan. If the remaining deficit was not filled privately, the Government was willing to convert “some or all” of the State’s €3.5 billion preference shares into a direct stake.
Mr Lenihan said no new State investment may be required at AIB depending on the capital raised through private means.
He said AIB must provide a capital-raising plan for the regulator by the end of the month.
Shares in AIB fell 9 per cent to €1.25 yesterday, giving the bank a market value of €1 billion. At this level any State injection would give it a significant majority stake.
Mr Lenihan said the bank would be given the opportunity to raise private capital, but, if insufficient amounts were raised, “it is probable that the State will have a majority shareholding in AIB as a list entity”. This means the bank will not be fully nationalised.
“This is much more preferable than an undercapitalised or only adequate capitalised entity.”
Nama said in a separate statement that the first tranche of loans would be transferred from AIB by early April. The bank is selling loans with a face value of €3.3 billion to Nama in the first wave, for which it will receive €1.9 billion.
This represents a loss of €1.4 billion on this tranche of loans and a haircut of 43 per cent. The bank is transferring a total of €23 billion.
AIB managing director Colm Doherty said in a circular to staff yesterday evening that he still felt the bank’s “self-help” plan of selling assets and raising cash from shareholders and investors would “achieve significant results”.
It was “extremely disappointing” that AIB would have to sell its UK, US and Polish assets, and “unsettling news” for staff working in those businesses.
“The unprecedented events of the past couple of years have left many individuals and organisations, both in this country and throughout the world, having to take radical action to secure their future. And, as a result both of our excessive exposure to Irish land and property development and the impact of other worldwide events, we must now do the same.”