Nationalising banks ruled out as AIB seeks further €1.5bn

THE Government says it has no intention of nationalising the country’s two largest banks, as AIB revealed plans to raise a further €1.5 billion.

AIB is looking to sell assets after stress tests indicated the company needs more capital in addition to the Government’s investment of €3.5bn.

Similar government stress test scenarios for Bank of Ireland were also carried out and the Department of Finance said they did not indicate a need for any further capital beyond the €3.5bn already invested in the bank.

Bloxham stockbrokers said the direct implication of AIB’s plans means it will put its stake for US lender M&T and Poland’s Bank Zachodni up for sale.

“The combined stakes have a value of around €2bn at current prices, but the capital impact for AIB is greatly less than that due to tax and potential carrying value impact.

“There is also potential for the buy-back of certain AIB tier 1/tier 2 bonds for a significant capital benefit. This could be for around €500m to €700m depending on prices paid and take up,” said analysts.

Selling the stake in M&T could raise €660m, said Davy analyst Emer Lang.

AIB said market and public uncertainty about its capital adequacy has persisted despite the proposed Government funding. It said €5bn is “appropriate” to strengthen the bank’s capital position.

Speaking in Newcastle West, Co Limerick, yesterday, Finance Minister Brian Lenihan said the strengthening of AIB’s capital position will improve the bank’s balance sheet and better position it to lend to businesses in support of Ireland’s economic recovery.

“There are no other issues in Allied Irish Bank. It is a sound bank and has the capacity to raise these funds and indicated its intention to do so. It is for them to raise that money and that is what they have indicated to the government,” he said.

Due to concerns which arose, his department discussed the matter with AIB over the weekend and the bank agreed that the correct figure to meet their prospective debts at this stage was €5bn.

Mr Lenihan added: “They have undertaken in the rest of this year to raise that sum themselves. I have made it clear from the Government’s point of view that any further investment in AIB or any other of the Irish banks would take the form of ordinary equity, in other words ordinary share holding which would increase the Government’s control over that bank.”

AIB said it will participate in the Government’s proposed National Asset Management Agency.

Mr Lenihan said work has already started on the establishment of NAMA and this will be progressed as a matter of priority over the coming weeks.

AIB last month said it faced a loss of as much as €4bn on real estate loans this year. The bank, which has a 24% stake in M&T Bank and owns 70% of Bank Zachodni didn’t say what it may sell after a “reappraisal” of its asset disposal policy.

AIB Irish rose 2% to 88 cent in Dublin yesterday. The stock declined 34% in the previous six sessions.