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IL&P comes in second place but BoI lies in bottom half of table

IRELAND's banking reform was given mixed messages by the European stress tests last night after Bank of Ireland (BoI) found itself in the bottom half of the results table and Irish Life & Permanent (IL&P) came in second.

BoI, the only Irish bank that has any chance of remaining in private ownership, came in 48th place out of the 90 banks surveyed by the European Banking Authority (EBA).

The result gave the bank full credit for the €5.35bn in fresh capital it will have notched up by the end of July -- cash that was supposed to make BoI one of Europe's best capitalised institutions.

IL&P has emerged as the second best capitalised bank on the continent. Shareholders will be strongly represented at an extraordinary general meeting on Wednesday, where they'll argue against accepting a €4bn state bailout that will leave private investors owning just 0.1pc.

Despite the mixed messages, the Department of Finance last night welcomed the results, which also revealed AIB as the 17th best capitalised bank in Europe.

All three Irish banks comfortably exceeded the 5pc 'core tier one' ratio demanded by the tests, which implies banks must hold €50 of high quality capital (typically investors' money and earnings) for every €1,000 in assets they hold.

A spokesman insisted the department was "not concerned" about BoI's performance, pointing to the "rigorous" stress tests carried out by the Central Bank in March as sufficient to deal with the Irish banks' capital positions.


Sources close to BoI, meanwhile, said the pace at which it planned to sell off assets explains why the bank performed less well than its Irish peers in the European tests.

All three banks have been given a target to sell down a combined €70bn worth of assets over the next three years.

BoI said its disposals were "front-loaded" to the first two years of the three-year period. Since the European tests only cover the next two years, BoI suffered higher losses on the sell offs and "ate more capital", one source said.

Losses for the sell offs are not broken out separately in the extensive EBA documentation, which pencils in cumulative operating losses of almost €3.9bn for BoI over two "adverse" years.

The figures differ greatly from those published in the Central Bank's March stress tests -- a spokesman for the Central Bank said there were "significant deviations" in the way the figures were prepared.

The tests took a different approach to funding in particular, with the Irish exercise assuming banks reduced their dependence on cheap central bank money and the European ones assuming funding profiles remained as at December 2010.

Irish Independent