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Irish banks could fail stress tests, warn EU experts

INTERNATIONAL analysts have warned that Bank of Ireland (BoI) and AIB could fail the new European banking stress tests.

The Committee of European Banking Supervisors (CEBS) is currently carrying out a stress-testing exercise on 91 European banks, including AIB and BoI, and will report on the results in two weeks' time.

The move is designed to ease investor fears that EU banks are at risk if heavily indebted countries such as Greece fail to repay loans.

However, a research note from JP Morgan Cazenove has identified the two Irish banks among a group of 11 in danger of failing the new tests.

And a London-based analyst with Deutsche Bank, Matt Spick, named Irish banks as among a number of institutions he believes unlikely to meet the criteria.

Spick said he believed most European banks would pass the tests, but he singled out two -- National Bank of Greece and Allied Irish Banks -- as the most likely to fail among the banks he covers.

Bank of Ireland recently raised €3bn from the capital markets to boost its reserves.

The CEBS tests will not take into account any further fundraising that the banks involved may be planning.

AIB has to raise €7.4bn to meet the much tougher standards laid down by the Irish regulator, and the bank pointed out that this process is already under way.

Group managing director Colm Doherty has reassured staff that there have been no final decisions on job cuts.

The bank boss yesterday admitted AIB would be a "smaller organisation" in the future, a change that will have "ramifications at all levels in relation to both staff and structure".

"I can tell you categorically that despite the widespread speculation you may have read or heard, no final decisions have yet been made as to what actions will need to be taken," he said in an email to staff.

And the bank has been locked in discussions with the Financial Regulator regarding the appointment of the bank's new chief risk officer.

The position has been vacant for close to eight months after the bank said it would hire an outsider.

It is believed the bank underlined difficulties in securing a candidate given the restrictions imposed by the Government's oversight committee on bankers' pay, which caps senior executive remuneration at €500,000.