Irish Life and Permanent capital needs ‘best served by rights issue’

IRISH Life & Permanent (IL&P) should launch a rights issue to raise extra capital whether or not it forms part of the much anticipated wave of bank consolidation, according to Merrion Stockbrokers.

Merrion said yesterday, via a detailed research note on the financial services group, that it now values IL&P’s recapitalisation needs at €800 million – for the group to achieve an 8% equity tier-1 capital ratio.

While this represents a slight lowering on Merrion’s part it is still well above the €600m alluded to by IL&P’s management at last week’s annual results announcement. The company had previously estimated a figure of around €870m.

“We expect IL&P will look to raise capital via a rights issue. This should be done regardless of potential participation in Irish banking sector consolidation. Other self-help options include potential gains from liability management or asset disposals,” said Merrion’s Sebastian Orsi in the note.

IL&P’s banking division, Permanent TSB, has been heavily linked with a “third force” of Irish banking that would also feature the EBS and Irish Nationwide building societies.

Last week, IL&P reported an operating loss of €196m for 2009, with PTSB posting losses of €270m. The group didn’t comment on yesterday’s report, but Merrion speculated about €1bn in fresh capital could be raised by selling the group’s life division, although it also conceded that such a move would be unlikely and not strategically attractive.

It also said €160m could be raised by selling its British-based buy-to-let mortgage book and IL&P’s 30% share in Allianz Ireland could go for €122m.