AIB and EBS get approval for aid

THE European Commission has approved state aid of up to €13.1 billion for the merged Allied Irish Bank and Educational Building Society to ensure it is sufficiently capitalised to meet stress test requirements.

As a result the state will own 99.8% of the merged banks shares. With Bank of Ireland, it will be one of two pillar banks under the restructuring plans for the country’s banking sector.

The approval is temporary subject to a revised restructuring plan being submitted to the Commission, due at the end of the month.

The review carried out by the Irish Central Bank identified capital needs of €13.3bn for AIB made up of €11.9bn Core Tier 1 capital and €1.4bn in contingent capital, and €1.5bn for EBS — €1.3bn Core Tier 1 and €0.2bn contingent capital.

The Irish state will buy €5bn of ordinary shares in AIB/EBS and €1.6bn of contingent capital notes. It will also inject €6.5bn into the bank’s capital reserves.

The funding will help ensure the banks meet the 6% stress case capital and the 10.5% base case targets set by the Irish Central Bank, assuming further de-leveraging of the banks to meet the 122.5% loan-to-ratio by the end of 2013.

AIB will ask shareholders to approve the state aid at an extraordinary general meeting on July 26.

The Commission earlier this week temporarily approved €5.35bn in state aid for the Bank of Ireland, pending receipt of its updated restructuring plan at the end of the month.