Business Irish

Wednesday 20 March 2019

Germans are warned: Irish may need fresh bailout

Yet BoI sells €1bn in CoCo bonds

Michael Noonan: Rejected calls for more bank capital
Michael Noonan: Rejected calls for more bank capital

Nick Webb

THE bailed-out Irish banks may need another bailout. In documents supplied to German lawmakers, the European Commission has indicated that it can't rule out the possibility that Irish banks may need further capital injections.

"Irish banks have been capitalised to a very high level relative to peers in other European countries and relative also to a conservative adverse scenario based on highly credible stress tests," the commission said in the documents given to Germany's parliament by its finance ministry, according to Bloomberg.

"Yet the risk of possible further capital needs in the future cannot be fully excluded, especially if the growth outlook deteriorates beyond what is currently expected." The comments were based on the troika visit to Ireland in October, as part of its monitoring of the bailout programme.

Minister for Finance Michael Noonan has dismissed these fears, adding that he doesn't expect the banks to need more capital on top of the €63bn already coughed up by taxpayers.

However, the major deleveraging process being undertaken by non Irish Stateowned banks such as Lloyds and RBS is putting severe pressure on the Irish banks to start crystallising more losses on commercial loans. This may put existing capital buffers under strain depending on the size of the hit.

Last week it emerged that Lloyds had sold its loans to the Moran Hotel Group to a US hedge fund, Canyon Capital Advisers. Lloyd's agreed to sell up to €140m in loans at a discount of up to 70 per cent. Moran Hotels owed €693m to banks including Lloyd's, Bank of Ireland, Allied Irish Banks, and Royal Bank of Scotland Group's Ulster Bank at the end of 2011.

Lloyds -- which owned the Bank of Scotland (Ireland) unit -- has taken €11.8bn in impairment charges on its Irish loans since 2008, representing around 40 per cent of its peak loan book.

Despite European fears over the Irish bank sector, Bank of Ireland was swamped by investor demand for its socalled 'CoCo' bonds. It sold €1bn-worth of the bonds to investors last week -- twice as much as had been expected. Late last week it emerged that investors had also been in discussion with AIB about the 99 per cent State-owned bank selling off some of its own CoCo bonds.

The State-owned banks have around €7bn in contingent convertible capital bonds and preference shares which may be sold off. The Government is also in negotiation with the ECB about selling these bonds to the European Stability Mechanism.

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