State ‘could own’ 80% of AIB and 72% of BoI

THE State could end up owning up to 80% of AIB and 72% of Bank of Ireland after the bailout of the financial sector is completed.

An analysis from Davy Stockbrokers implies substantial job losses may be required if the banks are to play a meaningful role in the future of the Irish economy.

What the final outcome will be for the banks and the State after the National Asset Management Agency (NAMA) is set up remains to be seen.

In that context Davy said what agreement is reached on the write-down of the assets now under scrutiny by experts will have a huge bearing on the outlook for the banking sector.

The so-called range of ‘haircuts’ — the write-off of banking assets the banks face at this stage — ranges between 15% and 50%.

Davy is assuming a figure of 15%, although no firm evidence exists as to what the final outcome will be in that regard.

Even allowing for the fact that the write-offs will be no more than 15% of the €80 billion to €90bn assets to be transferred to NAMA, the downgrade of the assets of the six banks could cost them €13.5bn.

Because of that and the additional funding required from the State, the taxpayer will end up with more than 50% of the banks, Davy concludes.

Davy notes the range of the asset write-downs has been speculated to be within a range of 15%-50% of the bad debts to be transferred to NAMA.

If the 50% discount was insisted on by the Government and NAMA in order to take the non-performing and other loans off the books of the banks, the impact in terms of asset write-offs would be a massive €45bn, which Davy describes as “an implausibly large hit.”

Whatever the final outcome, the report is assuming the lower 15% will be agreed in the case of Bank of Ireland.

And a somewhat high figure of 20% will be written off AIB’s loans, on the basis that it has more exposure to bad deals in Ireland than its arch rival.

If economic valuations are used instead of market ratings for the loans, the figures should come in at the lower end of the scale, Davy said.

Either way, the State will end up holding more than 50% of the equity in the banks by the time this deal has been finalised, which is a widely-held view at this stage among banking experts.

Assuming the two main banks will also have to achieve a 6% core equity tier 1 ration, that implies a need for €4.5bn in further capital after the assets have been discounted while a further €2.2bn will be required by Bank of Ireland, according to Davy.

The analysis says that the debate is still far from over about the banks and because of that “uncertainty over these issues may persist for some time,” it said.


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