The Government should write off a €3.5bn rescue loan to AIB by converting the debt into bank shares, according to Merrion Capital.
In a wide ranging report on all the main banks Merrion Capital says €3.5bn of so called preferred shares the State holds in AIB should be converted into equity “to enhance the bank’s viability.”
However, with taxpayers already owning almost all of the shares in the bank any debt for equity swap would not materially increase the State holding in the bank.
Merrion Capital says it expect AIB to break even next year.
Bank of Ireland, on the other hand, may try to repay its €1.8bn rescue loans – also in the form of preference shares by refinancing the debt on the markets.
The report says banks here have enough capital to cope with anticipated mortgage losses.