DUBLIN, Sept 16 (Reuters) - Ireland's top two banks are under pressure to show what assets they will put into a 54 billion euro government life-support plan and how they plan to plug the resulting hole in their capital.
Allied Irish Banks (AIB), Ireland's second biggest bank which is putting 24 billion euros of assets into the 'bad bank,' said it had options to boost capital, including by raising equity, getting an outside investor or selling assets.
Irish Finance Minister Brian Lenihan on Wednesday said banks will put assets worth a nominal 77 billion euros into the 'bad bank,' getting an average 'haircut' of 30 percent on the assets. .
Some banks would probably need to raise capital to absorb the losses that arise from the transfer of assets, he said.
Bank of Ireland, Ireland's biggest bank, will put 16 billion euros of assets into the National Asset Management Agency (NAMA). Nationalised Anglo Irish Bank will put in 28 billion euros and smaller lenders will put in the remaining 9 billion.
But there will be significant variation in the discounts paid on assets, and banks now need to detail the quality of their portfolios and how much capital they will need to plug any hole.
'The race will be on for the banks to clarify what they are putting in, and what the impact on capital will be,' one industry source said.
First out of the traps, AIB said it expected the discount on its assets would be less than the 30 percent average.
Using that average, the net write-down would be 3.7 billion euros before tax, AIB estimated, but said every 1 percent reduction in the discount would reduce its write-down by 240 million euros.
The Irish government's preference is for banks to raise capital privately, but the government would plug any gap a lender was unable to fill.
Bank of Ireland and AIB have already each received 3.5 billion euros in state funds, giving the government a 25 percent indirect stake.
AIB was quick to highlight alternative options, however.
The bank said last month it had received an approach from a third party for a minority stake, which two sources familiar with the matter said came from Canada. Irish media said Canadian Imperial Bank of Commerce had made the move.
AIB said the talks were not expected to progress until there was more clarity on NAMA, and it said late on Wednesday it will continue to explore its strategic options.
It could also raise funds by selling off its stake in M&T Bank, a regional bank in the eastern United States, or its profitable business in Poland.
Setting up NAMA could encourage appetite among investors looking for depressed assets, analysts have said.
AIB is the cheapest stock in Europe, with a price to book valuation of 0.4 for 2010 and Bank of Ireland is the seventh cheapest at 0.7, according to analysts at Keefe, Bruyette & Woods. This compares with an average of 1.1 for European banks.
HSBC was the financial adviser for setting up NAMA.
(Writing by Steve Slater in London; Editing by Phil Berlowitz) Keywords: IRELAND BANKS/CAPITAL (carmel.crimmins@reuters.com; Reuters Messaging: carmel.crimmins.reuters.com@reuters.net; +353 1 500 1529) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
Allied Irish Banks (AIB), Ireland's second biggest bank which is putting 24 billion euros of assets into the 'bad bank,' said it had options to boost capital, including by raising equity, getting an outside investor or selling assets.
Irish Finance Minister Brian Lenihan on Wednesday said banks will put assets worth a nominal 77 billion euros into the 'bad bank,' getting an average 'haircut' of 30 percent on the assets. .
Some banks would probably need to raise capital to absorb the losses that arise from the transfer of assets, he said.
Bank of Ireland, Ireland's biggest bank, will put 16 billion euros of assets into the National Asset Management Agency (NAMA). Nationalised Anglo Irish Bank will put in 28 billion euros and smaller lenders will put in the remaining 9 billion.
But there will be significant variation in the discounts paid on assets, and banks now need to detail the quality of their portfolios and how much capital they will need to plug any hole.
'The race will be on for the banks to clarify what they are putting in, and what the impact on capital will be,' one industry source said.
First out of the traps, AIB said it expected the discount on its assets would be less than the 30 percent average.
Using that average, the net write-down would be 3.7 billion euros before tax, AIB estimated, but said every 1 percent reduction in the discount would reduce its write-down by 240 million euros.
The Irish government's preference is for banks to raise capital privately, but the government would plug any gap a lender was unable to fill.
Bank of Ireland and AIB have already each received 3.5 billion euros in state funds, giving the government a 25 percent indirect stake.
AIB was quick to highlight alternative options, however.
The bank said last month it had received an approach from a third party for a minority stake, which two sources familiar with the matter said came from Canada. Irish media said Canadian Imperial Bank of Commerce had made the move.
AIB said the talks were not expected to progress until there was more clarity on NAMA, and it said late on Wednesday it will continue to explore its strategic options.
It could also raise funds by selling off its stake in M&T Bank, a regional bank in the eastern United States, or its profitable business in Poland.
Setting up NAMA could encourage appetite among investors looking for depressed assets, analysts have said.
AIB is the cheapest stock in Europe, with a price to book valuation of 0.4 for 2010 and Bank of Ireland is the seventh cheapest at 0.7, according to analysts at Keefe, Bruyette & Woods. This compares with an average of 1.1 for European banks.
HSBC was the financial adviser for setting up NAMA.
(Writing by Steve Slater in London; Editing by Phil Berlowitz) Keywords: IRELAND BANKS/CAPITAL (carmel.crimmins@reuters.com; Reuters Messaging: carmel.crimmins.reuters.com@reuters.net; +353 1 500 1529) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.