Friday 27 April 2018

Bank of Ireland slides on majority state stake concern

Reports suggest the Government's stake in Bank of Ireland may rise to more than 50pc. Photo: Bloomberg News
Reports suggest the Government's stake in Bank of Ireland may rise to more than 50pc. Photo: Bloomberg News

Bank of Ireland plunged for a third day as the Government prepared to inject more capital, a step that may make it the fifth lender to fall under majority state control in less than two years.

Bank of Ireland, already 36pc owned by the state, fell 33pc to 20.2 cents by 10:53am, after sinking 38pc over the past two days.

Allied Irish Banks, which already faces more than 90pc state ownership, slid 22pc to 25.8 cents.

The Government will seek to raise the core Tier 1 capital levels of its banks to between 10.5pc and 12pc, up from the Central Bank’s 8pc target, two people familiar with the situation said yesterday.

The Government’s stake in Bank of Ireland may rise to more than 50pc after the latest round of capital injections, said the people, who declined to be identified as the plan hasn’t been completed.

Bank of Ireland would need about €3.2bn of additional capital to bring its core Tier 1 ratio to 12pc, Emer Lang, an analyst with Dublin-based securities firm Davy, wrote in a note to clients today.

“Assuming the entire incremental requirement of €3.2bn had to come from government, we estimate its stake would rise to 79pc,” he said.

Escalating costs

The Irish banking crisis forced the Government to seek a bailout from the European Union and International Monetary Fund on November 21, after loan impairments surged following the collapse of the country’s decade-long property boom in 2008.

That year, the Government pledged to back most liabilities, including all deposits in Irish banks, a promise that led it to inject €33bn to support the lenders.

As loan losses climbed, the Government put the cost of the rescue at as much as €50bn in September this year, fueling investor doubts that Ireland could afford the rescue. This figure is now set to increase again.

AIB may end up 99.9 percent-owned by the state, RTE said on November 23.

The bailout may total about €85bn. Taoiseach Brian Cowen told the Dail today that a package of that size is being discussed, though no final decision has been taken.

Standard & Poor’s cut Ireland’s debt rating late yesterday by two notches to A, with a negative outlook, as the Government’s bailout of the banking system is set to escalate borrowing needs.

Capital flight

“The Irish government looks set to borrow over and above our previous projections to fund further bank capital injections into Ireland’s troubled banking system,” S&P said in a statement.

Putting the rating on “CreditWatch with negative implications” reflects risk of a further downgrade if talks on a European Union-led rescue fail to stanch capital flight, it said. S&P said it expects a bailout package to “instill confidence in financial sector liquidity.”

Irish lenders had become more reliant on emergency European Central Bank funding after being frozen out of wholesale markets.

The amount of ECB loans to the country’s banks rose 7.3pc to €130bn in October from the previous month, the Central Bank said on November 1. The data include both international and domestic banks operating in Ireland.


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