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http://www.ft.com/cms/s/0/...1e0-aa18-00144feab49a.html#ixzz1C9NOIcmrThe question now is whether Bank of Ireland can avoid a similar fate.
That depends on whether it will have to turn to the government for extra funding in order to meet the core tier one capital ratio of 12 per cent set by the regulators. If it can raise the €2.2bn ($3bn, £1.9bn) required to meet that ratio by the end of February, the government’s stake will remain at the current 36 per cent.
Although a number of sovereign wealth funds and private equity investors have expressed an interest, analysts are sceptical it will be able to raise the full amount required from private sources. They expect the government’s stake will rise to 70 per cent.
“For Ireland Inc the government would like to see one bank remain privately owned, but it’s going to be a struggle,” says Ciaran Callaghan, a bank analyst with NCB Stockbrokers in Dublin.
But Eamonn Hughes, a bank analyst at Goodbody stockbrokers, believes the deadline will probably be extended as the regulator plans to conduct fresh stress tests in March. If those tests conclude that capital levels will fall below 10.5 per cent, the capital requirement could be increased further.
“It’s the cart before the horse. No investor will want to invest until there is more information,” he says.
Another reason investors may hold off is that Bank of Ireland – like all Ireland’s banks – is having to shrink its balance sheet because of the terms in the €85bn bail-out from the European Union and International Monetary Fund.
As it sells non-core assets – such as its UK mortgage business and international loan portfolio – the bank’s capital needs may fall.
It has already submitted a capital-raising plan to the Irish Central Bank. One of the proposals is that some form of convertible or hybrid stock is issued to the state, which could be exchanged for ordinary shares at a later date if the bank is unable to raise the funds from private sources.
Bank of Ireland’s continuation as an independent entity is sometimes put down to its more conservative lending during the boom. It has also been more proactive in responding to the crisis, triggered by the property crash and the huge losses that crystallised as impaired loans were taken over by the state’s National Asset Management Agency, Ireland’s bad loans bank.
In May last year Bank of Ireland raised €3.5bn, including a rights issue priced at 55 cents. “They hit a sweet spot. Equity markets were rallying and Ireland’s sovereign debt crisis was not a big issue,” says Mr Hughes.
But market sentiment towards Ireland – and particularly Irish banks – deteriorated with Dubai’s debt problems and the Greek crisis early last summer.
Notwithstanding the continuing funding difficulties, with banks increasingly dependent on the European Central Bank as deposits were withdrawn, Bank of Ireland seemed to have addressed its capital needs.
Indeed, at the end of September, even after Nama cautiously increased the haircuts, or discounts, it imposed on loans it took over, Bank of Ireland was deemed by the regulator to have sufficient capital.
But the worsening of the sovereign debt crisis last October and November changed everything.
As part of the EU-IMF bail-out, the regulator increased the capital target from 8 per cent to 12 per cent core tier one.
The bank has already raised €700m via a bond buy-back in December. And Mr Callaghan estimates it could raise €100m more through further debt buy-backs.
But that still leaves a shortfall of €1.4bn.
Unless the bank is given more time, Bank of Ireland could be state-owned by the end of next month.
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