Irish banks will need a recapitalization of up to $29.5 billion to cope with the loss of property loans that will be transferred to the National Asset Management Agency (NAMA).
Not all of the $29.5billion will come directly from the state. The banks will compensate some of their losses through the sale of existing "toxic" properties and the government will convert $9.5 billion of indirect investments in AIB and Bank of Ireland into direct investments.
The state investments will dilute the stock of existing shareholders with the banks, and it may also take a majority stake in the AIB and a minority stake in the Bank of Ireland.
Bank of Ireland will seek recapitalization of up to $4 billion, and the AIB will seek $9.5 billion.
Irish Nationwide will seek $2.7 billion and the EBS will ask for $1.15 billion to recapitalize. Both Irish Nationwide and the EBS are mutual building societies and will more than likely become fully nationalized.
However the now nationalized Anglo Irish bank will now look for up to $12 billion on top of the $5.4 billion they already received from the state.
Minister for Finance Brian Lenihan said that "once and for all" he would draw a line under the banks.
However, Fianna Fail MP Ned O'Keeffe criticized his colleague Lenihan, saying that NAMA would fail and destroy our banking system.
The financial regulator is demanding that all banks keep a 7 per cent equity ratio. That means that the banks must set aside cash to cover stress case losses.
The EBS and Irish Nationwide are set to move their discounted toxic loans to NAMA today.
The AIB will move over $31 billion in toxic loans to NAMA and will face a discount of 50 per cent
The Bank of Ireland and EBS will expect up to 35 per cent discounts and while Irish Nationwide will face a 60 per cent discount.
Yesterday, AIB raised its variable mortgage interest rates by half a per cent. AIB has stated it is no longer prepared to loose money on home loans.
The half a percent increase will add $105 a month to the average $400,000 mortgage.
Lenihan said the recapitalization was "yet another example of why we have to put our banks into the right shape. And that’s what tomorrow’s announcement is about.”
Comments