AIB and BoI need €10.3bn to boost their reserves, say RBS analysts
Allied Irish Banks (AIB) and Bank of Ireland (BoI) need to raise a minimum of €10.3bn between them in order to bolster their reserves, according to analysts at Royal Bank of Scotland (RBS).
The funds would be required in the face of expected National Asset Management Agency (NAMA) writedowns and loan losses clocking up on the two banks' remaining loan books.
RBS estimates the banks will each have to go through two rounds of capital raising and asset sales to reach the target. It also expects that €4bn of the Government's €7.5bn-worth of preference shares in the two banks combined will end up being converted into ordinary equity as part of the process.
The analysts assume the Government will be the only source of cash in the first round -- converting preference shares into ordinary stock at a 58pc discount to the current market price. This would leave the State with effective 40pc ownership of AIB and 41pc of BoI.
RBS is advising clients to hold out until the banks launch a second cash call, when it believes that uncertainty over issues such as NAMA should be resolved.
On the asset disposals front, the broker expects AIB to sell its 23.5pc stake in M&T in the US and cut its 70.2pc holding in its Polish unit Bank Zachodni (BZWBK) to 50.5pc, either on its own accord or under instruction from Brussels.
It is estimated that the combined sales will generate about €1bn. "In the event AIB's entire 70.2pc stake were to be sold, the buyer would be required to bid for 100pc of the company," RBS said. "Since the regulator would be keen to keep BZWBK as a listed bank, it is likely that some of the company's shares would have to be disposed of post-acquisition."
RBS also notes AIB's 24.99pc stake in Hibernian Life Holdings could yield €267m if sold, while BoI could gain €400m by taking out some of its subordinated debt holders at a market discount.
The broker initiated coverage of both AIB and BoI with 'sell' recommendations, while it has a 'hold' stance on Irish Life & Permanent, its "preferred pick".