SHARES in the main Irish financial stocks fell yesterday, following a report by Citigroup claiming that more than €3 billion in extra funding may need to be pumped into AIB and Bank of Ireland.
In its note on Irish banks, Citi forecast that AIB could require a further capital injection of e2.1bn, with Bank of Ireland needing a further e1.2bn, on top of the e7bn across the two that the Government has already announced via its bank recapitalisation plan.
The company also said that there is now “a high probability” that both banks will end up with the Government as their majority stakeholder.
Due to the transfer of assets to the new National Asset Management Agency (NAMA) — the Government’s emergency budget proposal of effectively buying up to e90m of property-related loans from the books of the country’s main two banks — Citi said that AIB could show pre-tax losses of e7.9bn this year, with Bank of Ireland posting a loss of e5bn.
“The NAMA doesn’t protect the banks from losses, but will accelerate them. At the same time, operating profits will fall as a result of the transfer of assets to the agency,” the company said.
It did add that “whilst risks remain in the rest of the loan books [without the inclusion of property-focused loans], the ‘bad bank’ plan does remove a degree of uncertainty.”
Citi, which also yesterday reiterated its previous “sell” recommendation on both AIB and Bank of Ireland shares, wasn’t the only broker reaction, yesterday, to the Government’s latest plans.
Merrion Stockbrokers’ analyst, Sebastian Orsi said the NAMA move was “a necessary step on the road to recovery for the Irish economy.”
However, he added: “The banks’ disposals of assets will crystallise losses of an unknown scale.”
Mr Orsi also said that “significant shareholder dilution” is very unlikely.
“While the Government could take a shareholder-friendly approach to initial asset pricing, this would carry risks for the Government’s funding costs and the medium-term earnings power of the banks, as losses would be recouped over time,” he said.
On the ISEQ yesterday, AIB shares fell by 3.61% (4c) to 93c, albeit still managing to claw back some of its earlier losses. Bank of Ireland was down by 5c to 75c on a day when the overall Dublin market performed very strongly, up by 3.67% or nearly 86 points at 2,421.60 points.
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