AIB and BoI lending may be hindered for 10 years
ALLIED Irish Banks (AIB) and Bank of Ireland (BoI) could yet be nationalised because they are unlikely to be in a position to start lending to businesses for up to a decade, according to one of the world's top investment banks.
The fate of the country's two leading banks now lies in the hands of the European Central Bank (ECB) because the high-street banks have borrowed so much from the ECB over the past few years, analysts Hank Calenti and Alastair Whitfield of RBC Capital Markets said in a research note yesterday.
The 140-year-old Canadian investment bank, which is consistently ranked among the top 15 global investment banks, dismissed the Irish banks as being in a "vegetative state" and facing a "debt wall of worry".
The banks are likely to use money from the National Asset Management Agency (NAMA) to pay back the ECB and won't be in a position to lend to businesses from between nine and 14 years, they added. "The NAMA proposal alone is insufficient to address the business model challenges facing the bank," the analysts wrote.
"Nationalisation could keep the ECB in the game and allow more liquidity to remain in Ireland."
Finance Minister Brian Lenihan has repeatedly said he does not want to nationalise the banks, arguing that it would send the wrong signals to investors overseas. Still, he nationalised Anglo Irish in January after telling voters during the autumn that he did not intend to nationalise that bank. The move left shareholders with nothing.
Capital
The State already owns 25pc of each of BoI and AIB in preference shares, having spent €7bn to boost the banks' depleted capital bases.
The ECB is acting as a funder of last resort to the banks because other "funding models have collapsed" and this leaves the banks vulnerable to any demand for repayment.
"NAMA alone may not restart lending, other actions could be required," the analysts said.
The investment bank even questioned whether the banks could continue as a going concern. The analysts noted that AIB took the unusual step of saying in the half-year results last week that the bank's directors believed the lender was a "going concern", even though AIB did not have to make such a declaration. Anglo Irish did the same thing in the half-year results it published before it was nationalised.
An AIB spokesman declined to comment on the report yesterday, saying the bank never commented on broker reports.
The banks had "low to no" free capital available to protect unsecured debt holders while earnings were falling "to the point of business model atrophy", the report also said before recommending bond holders to sell any bonds in Irish banks that were not guaranteed by the State.
The analysts cut their ratings on the subordinated debt of AIB and BoI to 'underperform', their lowest rating, from 'sector perform', citing the risk of distressed bond exchanges, nationalisations and the requirements of Ireland's planned bank-bailout fund.
- Thomas Molloy
