Ireland’s crippled banks may require up to another $40billion in bail-outs with $30billion of it coming from the $50billion fund provided by the IMF and European Union.
That was the stark warning from top Irish stockbrokers firm Davys as EU Finance Ministers prepare for crunch talks in Brussels after the Portuguese government collapsed.
The Euro is under fresh pressure after the Portuguese government was defeated on a vote on new austerity measures to save their economy from an Irish style bail-out.
Ireland’s Prime Minister Enda Kenny and Finance Minister Michael Noonan have now delayed their demands for talks to reduce the interest rate on the bail-out until after the Irish banks have been stress-tested by Dublin’s Central Bank.
But the Davy stockbroker’s latest report claims another $40billion could be needed to save the Irish banks, most of it coming from the $50billion committed.
The Irish Times reports that the firm estimates that the four banks currently being stress-tested by the Central Bank will require up to $35billion in capital to meet higher anticipated losses.
Anglo Irish Bank, which is not subject to the test, will require a further $6billion, bringing the next bank bailout bill close to $40billion.
If these figures are accurate the government will have committed a total of $47billion to Anglo alone and $105billion to the six guaranteed banks in total.
Approximately $14billion of the $50billion EU-IMF bank fund has been set aside for immediate injection into the four banks currently being stress tested - Allied Irish Banks, Bank of Ireland, Irish Life Permanent and EBS.
Davy’s are confident that the government will not need to draw down the full $50billion EU-IMF bank fund.
“We would be hopeful that it would be in the $30billion range and that some of the $50 billion will remain undrawn,” said Emer Lang, bank analyst at Davy.
The firm also estimates that at the upper range of the capital requirement, mortgage losses will peak at 9.2 per cent of that loan book, significantly higher than the 5 per cent mortgage losses estimated by the Central Bank.
The estimate is based on about 7.5 per cent of owner-occupier residential mortgages and 15 per cent of buy-to-let mortgages.
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