Tuesday 20 February 2018

Banks may need €24bn, says Davy

Laura Noonan

THE four "continuing" Irish banks could need a €24.3bn bailout even if they are not forced to sell assets at a loss, analysts Davy warned yesterday.

The bleak picture emerges in an extensive research note that uses details recently revealed by the Central Bank to estimate the losses individual banks will suffer under the latest stress tests.

The "lower" estimate arrived at by Davy is a capital demand of €19.5bn, well above the €10bn initially mooted by the IMF/EU bailout. The "upper" estimate is €24.3bn.

Both sums stem solely from the ongoing Prudential Capital Assessment Review, or PCAR, which estimates how much capital the banks need to deal with future losses.

Earlier this week, Davy's warned that the banks could "realistically" require €20bn to deal if a separate liquidity review forces them to sell assets quickly.

The combined PCAR sum and the €20bn to deal with the liquidity review would put the banks' total demand at between €39.5bn and €44.3bn -- well above the maximum €35bn provided by the EU/IMF bailout.

Davy believes the EU will ultimately find a way to solve the banks' liquidity problems without forcing a fire sale of assets that Ireland can't afford.

Davy's PCAR estimates suggest the banks may need between €6bn and €9.2bn to deal with loan losses over and above those expected in the last set of stress tests.

The bulk of the extra losses stem from residential mortgage portfolios, which, Davy says, could see additional losses of between €2.1bn and €4.1bn.

Non-Nama property and construction loans are another flashpoint, with Davy pencilling in losses of €2.3bn to €2.8bn. Davy also points out that banks are likely to suffer losses beyond their loan books.

Davy is pencilling a further capital hit of between €3.5bn and €5.3bn on bonds, investments and regular trading.

Adding it all up, Davy arrives at a PCAR bill of €19.5bn to €24.3bn.

Analyst Emer Lang also points out that Anglo Irish Bank would need another €3.4bn to cope with the "adverse" scenario for its wind-down that was laid out last autumn.

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