Business Irish

Wednesday 29 March 2017

AIB and Bank of Ireland submit plan to split core and non-core operations

Bank of Ireland: submitted plans to the Central Bank. Photo: Getty Images
Bank of Ireland: submitted plans to the Central Bank. Photo: Getty Images
Laura Noonan

Laura Noonan

AIB and Bank of Ireland have both submitted plans to the Central Bank that would see their assets separated into "core" and "non-core" operations, the Irish Independent has learned.

But banking sources last night insisted there was "no clarity" on exactly how the splits would be achieved and that the broad plans are subject to major change in light of the appointment of a new Finance Minister.

The news comes as both institutions continue to engage with the Central Bank on plans to scale back their operations so they are no longer reliant on massive levels of liquidity from the European Central Bank

The Central Bank is reviewing the banks' proposals with a view to making an announcement on the restructuring of Ireland's entire banking system at the end of March.

Any restructuring strategy must also have the agreement of the European Commission, the ECB, the International Monetary Fund, the Department of Finance and the National Treasury Management Agency.

"We've submitted plans, but talks are ongoing; absolutely nothing is set in stone yet," one banking source said.

Another pointed out that the appointment of a new Finance Minister could lead to a change in the restructuring strategies.

The plans submitted so far are understood to involve both major banks splitting their businesses into "core" and "non-core" portions.

The "non-core" portions could include entire businesses -- such as UK operations -- and could also include piles of loans in areas the banks are withdrawing from.

Those "non-core" assets would then be warehoused in a structure separate from the main Bank of Ireland and AIB groups, so that the banks would not have to sell them at fire-sale prices and endure a massive capital hit.

Sources said that "no decision" had been made on whether both AIB and Bank of Ireland would each have their own internal "bad banks" for the non-core assets, or whether there would be a sector-wide "bad bank" to mop up the non-core assets of several Irish banks.

Sources also said that the ownership structure for the non-core assets had not yet been worked out.

Banks in the UK, including Ulster Bank owner RBS, have set up their own internal bad banks so that the performance of loans from discontinued (and often troubled) areas can be stripped out from the performance of the surviving bank.

Irish Independent

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