Bank of Ireland will raise from private sources much of the 2.7 billion euros ($3.6 billion) it needs, potentially becoming the only member of Ireland's "bad bank" scheme to escape a fresh bailout. The bank's statement on Wednesday that it was in fundraising talks with investment banks is a relief for the Irish government, which faces years of scrimping to plug a black hole created by the profligate financial sector.
The heaviest losses of all stem from now nationalised Anglo Irish Bank, which on Wednesday confirmed weeks of speculation by announcing a loss of 12.7 billion in the 15 months to December, the deepest shortfall in Irish corporate history. The bank needs up to 18 billion euros of fresh state capital, almost as much as Dublin borrows in a year to fund its budget deficit.
Prospects for Bank of Ireland were relatively rosy and its shares jumped more than 24 percent after it said loan losses had peaked and it was in talks to raise capital to compensate for poor returns on property loan sales to the bad bank, the National Asset Management Agency (NAMA).
Ireland's biggest bank by market value will privately raise about half of the capital it requires to provide a buffer against future losses. The state will convert some of its 3.5 billion euros of preference shares into ordinary equity but should not have to underwrite the rights issue.
The problem all the Irish banks face will be competing for business in Ireland's shrunken domestic banking sector. In all, the three banks and two building societies involved in the bad bank scheme require at least 22 billion euros, with a possible further 10 billion for Anglo Irish at a future date.
The listed bank with the biggest capital problems, Allied Irish Banks (AIB) has been given time to try and sell assets before getting a fresh bailout, but some analysts still think it could end up 75 percent owned by the state. AIB shares remained under pressure on Wednesday, falling 2.8 percent as it continued to digest Tuesday's flood of announcements on the level of discounts NAMA will pay to take on property loans and the consequences for banks' capitalisation.
Bank of Ireland is selling the first tranche of its loans to NAMA at a discount of 35 percent and said the discount on the whole 12 billion euro portfolio will be in line with its previous guidance which pointed to a lower discount. On Wednesday, it also reported an underlying loss of 1.47 billion euros for the nine months to the end of December, having shifted the end of its fiscal year to match the calendar year.
The injections into Anglo and two building societies take the form of promissory notes, in effect not paid for up to 15 years, which means it should not hold up Ireland's efforts to cut what is one of Europe's biggest deficits as a ratio of gross domestic product (GDP).
Ireland's fiscal measures have done much to reassure international investors, who have compared the country favourably with Europe's other struggling nations. The challenge is to maintain fiscal discipline. The latest economic data on Wednesday added to the evidence Ireland's economy is stabilising at a low level. The number claiming unemployment increased by only 600 in March and the decline in private lending accelerated only marginally from 7.1 percent to 7.3 percent.
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