# Government Comments On AIB's Plans to raise capital



## Sunny (20 Apr 2009)

IRISH FINANCE MINISTRY COMMENTS ON BANK RECAPITALIZATION 2009-04-20 10:26:12.877 GMT

     (The following press release from the Irish finance ministry was received by e-mail. It was not confirmed by the sender.)

Minister for Finance response to AIB statement on capital

The Minister for Finance Brian Lenihan, TD welcomes today’s statement from AIB that it is to move to strengthen its capital position by a further €1.5bn over and above the State capital injection of €3.5bn. This move by AIB will further boost confidence and credibility in AIB’s ability to weather the financial storms we have experienced and to emerge in a stronger position when conditions improve. The strengthening of its capital position will improve the banks balance sheet and better position it to lend to businesses in support of Ireland’s economic recovery.

The Minister also welcomes the AIB support for the positive step taken by Government to create the National Asset Management Agency and its intention to fully participate in the initiative. Work has already commenced on the establishment of NAMA and this will be progressed as a matter of priority over the coming weeks.

20 April, 2009

Note for Editors

Questions and Answers

1. Why does the Minister think that AIB needs extra capital?

In advance of the investment in AIB of the announced €3.5bn State recapitalisation, the National Pensions Reserve Fund Commission has been carrying out a full due diligence exercise, with the assistance of Price Waterhouse Coopers.  This due diligence has shown that in certain extreme stress test scenarios AIB’s Core Tier 1 Capital could need to be further strengthened. Following discussions the Minister and the bank formed the view that it would be appropriate that AIB would strengthen its capital by a total of €5bn. 


2. Have the due diligence exercise and stress tests thrown up any major problems?

It is important to say that it is normal for any major investor to carry out such an exercise as a matter of prudence. The due diligence exercise included an assessment of the impact on AIB of a range of stress test scenarios.  The due diligence process will continue up to the recapitalisation of AIB in mid May. At this stage, the Minister has no reason to anticipate any further problems will emerge. 


3. Are there any problems with NAMA?

The Minister welcomes the AIB statement today confirming its full support for and intention to participate in the National Asset Management Agency process. 
The due diligence exercise is assessing the performance of the banks existing structures and loan books and is separate from the NAMA initiative recently announced by Government. The initial preparatory work to establish the NAMA is already underway. The evidence of deterioration of the bank’s land and development book confirms the need to speedily establish the NAMA so that these bad loans can be taken off the bank balance sheets, freeing them up to lend to business and individuals in support of economic recovery. The Minister confirms that getting the NAMA up and running as soon as possible will be treated as a priority over the coming weeks.


4. What about Bank of Ireland – have they had the same stress tests and will they be needing more capital?

The same type of stress test scenarios were applied to Bank of Ireland as part of their due diligence exercise. These stress scenarios did not indicate to us a need for any further capital beyond the €3.5bn invested by the Government.


5. Does the Minister intend to nationalise AIB

The Minister has stated clearly that he does not intend to nationalise AIB or Bank of Ireland. The Minister considers it important that these banks continue to have a market presence and to operate within market disciplines and constraints. The Minister, however, made it clear in his budget statement that if any further capital injections are required from the State these would be in the form of equity capital, which would have the effect of increasing state ownership and control.
                                     Ends


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## Duke of Marmalade (22 Apr 2009)

Informative press release, though I suppose we already knew most of the content. 

The most interesting point was that they referred to "extreme" stress tests. This would seem to suggest that the worst discount NAMA can apply would not cause any bigger a hole, indeed since these are extreme tests we would expect NAMA discounts to be somewhat less than this.

They are NOT going to nationalise these banks, though a strong chance they will be majority owned by the government.

On a related point I thought the IMF comment, if accurately reported was very misleading. According to the IT the IMF said the "cost of stabilising the banks would be €24bn". This suggests that the taxpayer will lose this but is it not the case that if NAMA gets its price right there will be no loss to the taxpayer?

I was also somewhat surprised and encouraged that we weren't that far worse than the UK and the US. I though that with our obsession for property development we were in a basket case league of our own.


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## canicemcavoy (1 Oct 2010)

Well so much for that stress test.


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