Sunday 8 December 2019

Capital call by AIB may be scaled back from €10.4bn

Laura Noonan

THE punishing new capital requirements for AIB could be pared back at the end of the year, but market sources say any good news would come too late to save the bank's shareholders from massive dilution.

The news comes days after the Financial Regulator stunned the market by demanding that AIB boosts its capital levels by €10.4bn, some €3bn more than the bank's previous target.

The extra chunk stems from the regulator's belief that AIB will be forced to take losses of 60pc on the toxic loans it has left to transfer to the National Asset Management Agency (Nama) against previous predictions of a 45pc haircut.

The 60pc figure is based on "very definite" guidance around the third batch of loans AIB is due to transfer, with the debt assessed on a loan-by-loan basis.

The figures for the final tranches of loans, where the regulator has assumed the highest levels of discount, are more subject to change since those loans have not been gone through one by one.

The regulator has set in place a mechanism for a "reconciliation" process of the actual Nama haircuts and this week's estimates at the end of the year, when all the banks' loans have transferred over.

Analysis suggests AIB's capital target would be reduced by more than €200m for every one percentage point improvement in that 60pc discount rate. If actual losses came in at 55pc, AIB's capital target would fall by more than €1bn.

"That would be welcome, but it'll come far too late for the shareholders to see much of an upside," said one analyst.


"AIB is going to have this massive capital raising in November, there's going to be massive dilution for the small shareholders, if things improve at the end of the year it's hard to see how those small shareholders will see much of an upside."

The bank's shares hovered around the 50c mark yesterday, putting them in the range of AIB's planned €5.4bn equity offering in November.

Market sources underplayed the significance of the share price's correlation with the offer price. "I wouldn't read anything into that," said one source, stressing that private investors were likely to be "reluctant" to buy shares in the offering.

The regulator is also planning a follow-up capital assessment exercise early next year, where he will revisit the targets set in place this year for Ireland's banks.

The exact timing of the next batch of Irish stress tests has not yet been decided, since the regulator is hoping they will coincide with a follow-up round of Europe-wide tests.

Irish Independent

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