According to the Lex column in the Financial Times the decision to inject €3.7bn into the bank from the National Pensions Reserve Fund Commission multiplied the state’s share of the equity fivefold to 93%.
“The price suggests the desperation of the situation. It was only early last year that the state paid almost as much, €3.5bn, for its first 19% cent of AIB. Since that initial rescue, the bank has transferred billions of euro of lousy property loans to NAMA, the Government’s bad bank, and has agreed to sell bank stakes in Poland and the US. But these moves were far from enough to save the day.”
The bank still needs €6.1bn to comply with capital requirements imposed under November’s €67.5bn sovereign bail-out by the European Union and International Monetary Fund. The bulk of that will come from conversion of the state’s preferred shares, but other stakeholders will be on the hook for €2.6bn, according to the FT.
“Holders of two subordinated AIB bonds have already taken an 80% haircut. Minority shareholders could yet be wiped out completely. As yet, AIB’s senior debt holders, who also helped fund the bank’s lending spree, have got off scot-free.
“That ugly outcome could have been avoided by a more honest quantification of the full extent of AIB’s potential losses, followed by a more conclusive and thorough recapitalisation.”
According to Lex it is not too late for tough action.
“Dublin should not leave the Irish banks to the market. Rather, it should restructure aggressively those that need it, salvage the good bits and put the bad into a run-off in NAMA. “Bank of Ireland might emerge largely unscathed; the rest of the sector would be healthier, if unrecognisable.”