It takes the total bill for repairing the hole in the banking sector caused by the bursting of the Irish property bubble to €70bn.
All the Irish banks are now likely to be state-owned. Two new universal banks are expected to be created from existing institutions – Bank of Ireland will remain while AIB and building society EBS are to be merged.
“We will also ensure that they are fully recapitalised so that the world looks at these core banks with confidence and they in turn help instil confidence in our economy,” said Michael Noonan, minister for finance. The extra funds are within the funding envelope available for this purpose from the EU/IMF programme of support announced last year.
Ireland’s central bank governor, Patrick Honohan, said it was “one of the costliest banking crises in history”.
He said that by forcing banks to hold even more capital, he hoped that confidence would be restored to the sector, which is reliant on the European Central Bank for day-to-day funding.
He said the banks needed to be able to have enough capital to meet even the markets’ most “gloomy prognostications”.
While AIB will need €13.3bn, Bank of Ireland will need €5.2bn, EBS building society €1.5bn and Irish Life and Permanent some €4bn.
Ireland had previously announced a figure of €46bn for the cost of bailing out its banks.
Noonan blamed the cause of the crisis on the decision by the former Fianna Fail government in September 2008 – during the international banking crisis – to guarantee the banking sector and particularly Anglo Irish Bank.
Anglo and Irish Nationwide were not part of the latest stress tests and there is no “immediate need” for extra capital.
“The country has been left with an appalling legacy: a legacy of debt, of unemployment, of emigration, of falling living standards and of low morale,” Noonan said.
He added that overseas banks operating in Ireland – including the Ulster Bank operation of Royal Bank of Scotland – “will help maintain the competitive fabric of the market” as Ireland’s banks were restructured.
He described Bank of Ireland as the “pillar one” bank that will shed €30bn of assets but retain its link with the Post Office in the UK.
The “pillar two” bank – the combined AIB and EBS – will deleverage by €23bn by 2013
the irish times says
Ireland’s beleaguered banking sector is to be recapitalised by a further €24 billion and restructured around two core retail banks under the Government’s plan to finally draw a line under the banking crisis.
This will be the fifth attempt to recapitalise the banks and bring the total cost of bailing out the sector up from €46 billion to €70 billion.
Under the plan, Minister for Finance Michael Noonan said the Government would reduce the number of domestic banks to two “universal pillar banks”.
Bank of Ireland, which will form the first pillar of the new banking system, will be forced to sell off €30 billion of assets by 2013.
The restructuring will also see Allied Irish Bank – once the country’s biggest bank – merged with the EBS building society to form a second pillar. Irish Life & Permanent will be restructured and forced to sell its lucrative pensions division Irish Life.
“This radical restructuring of the banking system is designed to put the banking system on a firm footing for the future and break the bonds with our toxic banking past,” Mr Noonan told the Dáil this evening.
He also indicated the Government would seek “significant contributions” from subordinated bondholders in the
banks to pay for the cost of recapitalising the sector.
The €24 billion recapitalisation figure for the banking system was determined by the Central Bank’s long-awaited stress tests on the banks.
The extra capital requirements means the State will need substantially more of the €35 billion earmarked for the banks under the EU/IMF bailout deal than previously envisaged.
The stress tests, which gauged the banks’ ability to cope with unanticipated downturns in the economy, indicated AIB will need a further €13.3 billion to cope with future loan losses, the Central Bank said earlier.
Bank of Ireland, which is already 36 per cent State-owned, will require a further €5.2 billion while Irish Life and Permanent will need a further €4 billion, bringing both lenders into majority Government ownership for the first time.
EBS will require about €1.5 billion and is now expected to be merged with AIB. Anglo Irish Bank and Irish Nationwide were not tested as they are to be run down over time.
Central Bank governor Patrick Honohan said the intensive nature of the tests were designed to respond to ”market scepticism” about the Irish banks. He said a pre-requisite for banks to return to normal is that they have capital to meet even the markets “gloomy prognostications”.
“This is what we regard as an adverse and unlikely scenario but we don’t expect it to be this bad.”
Prof Honohan warned against imposing losses on banks’ senior bondholders without the agreement of other EU states. “Unilateral action would not be a net gain for Ireland,” he said at the briefing in Dublin.
Share trading in BoI and AIB was temporarily suspended today, pending the stress test results and any subsequent related announcements by the banks.
The Central Bank sought the suspension “to avoid the possibility of a disorderly market due to the circulation of information or rumours during the day”.
“The upshot of the increased scrutiny, oversight, forecast conservatism and loan-deposit timetable is that the holes to be filled in the Irish banking system will swallow the entire €35 billion,” Brian Devine, chief economist at NCB Stockbrokers said.
Minister for Finance Michael Noonan has today proposed a ground-breaking restructuring of Irish banks, which he said would “break the bonds with our toxic banking past.”
The announcement came shortly after the publication of banking stress tests results which show that a further €24billion in recapitalisation is required for Irish banks.
Speaking in the Dáil this afternoon, Mr Noonan outlined a plan which includes the creation of two “universal service” banks, one of which would be formed from a merger between AIB and EBS.
The Minister also said that Irish Life and Permanent would “in all likelihood” cede majority control to the Government and will be forced to sell its Irish Life Assurance and its life and pensions business.
Making his announcement, Mr Noonan said the radical restructuring of the country’s banks was designed to return the banking system to long-term viability and profitability.
“Our banks will need to be smaller, more focussed on core operations, better funded and better capitalised,” he said.
Mr Noonan said the capital injections announced today would be provided to create a banking system that has two universal full-service banks as its core pillars and a restructured Irish Life and Permanent.
“The first Pillar banks will be created from the already strong franchise of Bank of Ireland and it is our intention to combine the businesses and strengthen the franchises of Allied Irish Bank and the EBS Building Society to form the second Pillar bank.
“Each of these banks will reorganise their operations into core and non-core functions. With a carefully managed programme of deleveraging, by 2013, as the non-core assets which do not serve growth on the island of Ireland disappear, the Pillar banks should start to better serve the economy as functioning banks rather than the oversized, overleveraged banks they now are.”
The Minister said the banks’ non-core businesses and assets would be sold or run off over time to avoid fire-sales.
“This will allow for a significant reduction of the level of assets relative to deposits over time. With these sales, recapitalisations and other measures the banks will repay their ECB and Central Bank funding and in time will be better able to raise their own funds,” he said.
Mr Noonan said BoI would be split into separately managed non-core and core divisions and in doing so would shed €30 billion of assets by 2013. The institution will be more domestically focused and retain its businesses in Northern Ireland, its Post Office deposit venture in the United Kingdom and limited capital markets businesses.
A merger between AIB and EBS will also lead to a largely domesticated bank which will retain its Northern Ireland operations and certain deposit funded operations in the UK. The non-core division of the combined entity will see deleveraging of €23 billion of assets by 2013.
The Minister confirmed that Irish Life & Permanent is expected to cede majority control to the State and will sell its Irish Life Assurance and its life and pensions business.
The Minister said that no additional capital for Anglo Irish or Nationwide is currently needed but said a decision will be taken in May to see whether more is required then.
Mr Noonan said the taxpayer should not be solely responsible for solving the banking crisis and said the Government would seek “direct contributions to solving the capital issues of the banking system by requiring further significant contributions from other sources including from subordinated debt holders, by the sale of assets to generate capital and where possible by seeking private sector investors.”
The Minister also announced measures to strengthen and enhance the capacity of the Department of Finance in the area of banking policy.
“It is essential that the Department of Finance has the appropriate policy responsibilities and financial market and banking expertise to be able to advise Government on potential systemic threats and on measures to address and mitigate these.”
Mr Noonan said the Government was committed to the EU-IMF programme agreed last November despite wishing to change aspects of it.
“I want to be clear, too, for the benefit of our people and of market participants, that we are committed to the EU-IMF programme. We have issues that we wish to raise and changes that we need to make in the context of ensuring growth and recovery in the Irish economy. But we will respect the overall fiscal parameters of the programme and where adjustments to the programme affect these, we will make appropriate offsetting adjustments.”
Now I want to be clear,
this is not what the Irish public voted this crowd into office for.
“Not one cent more” was the cry and now these same people are now looking to pump 24,000,000,000:00 Euros more into these self same toxic banks. In the entire announcement there is no mention of the derivates losses that are still been hidden be the two banks Allied Irish Bank and Bank of Ireland.
There is no mention as to the status of current derivative trades and likely losses why?
Well firstly these losses are been hidden in their offshore branches in the IFSC and they would appear that they are not subjected to any regulation, as the Irish central Bank says it is the ECB’s job to regulate these banks but the ECB says its the Irish Central Bank ‘s job so in the meantime nobody is regulating and so the Boys in Allied Irish bank and Bank of Ireland have the best place to hide such losses and possibly also hold on deposit vast sums of hot money from around the world .
The economy is not likely to generate any serious jobs growth in the next three years as we are now more than likely going to have to endure even harsher budgets to come up with the funds to pay off the interest on these lost billions. More and more people will be losing their jobs and emigration is just getting started and home prices are heading down at least another 30 % from here. The new government are fast abandoning promises to the voters of Ireland and we are left with the question what it all was for the good ship Ireland is still maintaining the course set by the previous despots and traitors who promised us that this bailout would be the cheapest in history! Nama is now turning out to be the mother of all Quangos and its jobs and Jobs for the well connected around town .The new government must get their finger out and start delivering on promises and the first one is not one cent more for the Banks period!
when are going to see these gangsters from the Banks go to jail???
- Dublin: Stress Tests Show That Banks Need €24bn Of Further Capital: UPDATED (lostchildreninthewilderness.wordpress.com)
- Irish FinMin Wants Bank Losses Passed To Shareholders: Press (forexlive.com)
- A stressful day – running commentary (namawinelake.wordpress.com)
- Irish CBank: Irish Banks Need E24 Bln In New Capital (forexlive.com)
- Allied Irish Bank nowhere to go ! (thepressnet.com)
- Ireland’s banking black hole to be unveiled (newstatesman.com)
- M&A Watch: Pain in Irish Style Bank Mergers (AIB, IRE) (247wallst.com)