Bank of Ireland, College Green, Dublin 2

Investment units of Irish banks AIB, Irish Life Permanent and Bank of Ireland and a number of other Irish and international institutions are reported to be developing a plan to recapitalise the domestic banking system as co-investors with the State.

The Irish Association of Investment Managers (IAIM) who oversee €260 billion in investments has been in contact with he Government and the four main banks with details of investors willing to invest in the Irish banks.

IAIM chief executive Frank O'Dwyer said in a statement that a number of investment institutions “familiar with the Irish market believe that the process of re-capitalising the Irish banks offers an investment opportunity and returns which are attractive to them and their clients”.

“It is proposed that institutions which wish to be involved would co-invest with the State in the raising of new tier 1 capital for Irish listed banks. A number of domestic and overseas institutions have indicated their support.

"A number of domestic and overseas institutions have indicated their support for the initiative. Other overseas institutions will be contacted over the coming days."

The statement also said that the institutions have asked the IAIM to determine the process through which they may discuss, with the Government, progressing this expression of interest.

"The proposal would involve large pension funds and could also facilitate individual investors," IAIM said.

Investment by subsidiaries managing funds in their parents, would require a change of current rules.

An alternative proposal to investments by private-equity groups, would likely have greater support within the banks and also generally because of fears of big job losses and the emphasis on high short-term returns for investors.

The Bank of Ireland has met four private equity groups and bankers are due to meet Finance Minister Brian Linehan on Friday.

The Minister said on Tuesday night that he had asked all six guaranteed banks and building societies to enter a "period of reflection" on how the banking sector might be reformed.

He said the sector "should not be rushed into solutions" and that banking reform needed reflection and time. "We cannot reform the sector on the back of an envelope."

The LEX column in the Financial Times says today: The aggregate loan-to-deposit ratio of all six institutions guaranteed by Dublin is more than 157 per cent, remarkably close to the 160 to 170 per cent ratio at the peak of HBOS's folly. Ukraine and Hungary, with ratios respectively of 153 per cent and 119 per cent, have both turned to the International Monetary Fund for assistance.

Yet Irish banks still favour the slow route to boosting their capital adequacy, preferring to sell assets, shrink balance sheets and trim dividends. As Bank of Ireland's issue on Wednesday of €2bn of government- guaranteed bonds shows, funding too can be finessed. The pressure for fresh capital and a more conservative funding base is more acute than ever.

BoI gained 13% in Dublin on Wednesday, following an announcement that it had raised €2 billion through the issuance of a public benchmark-sized September 2010 year Government Guaranteed Euro senior unsecured fixed rate bond. This has been issued from Bank of Ireland's Euro Medium Term Note programme. The bank says this transaction demonstrates Bank of Ireland's access to term wholesale funding markets throughout the current market turmoil.

The Irish Government banking guarantee, was clearly a key factor.

BoI said the issue received significant oversubscription with a final order book of close to €3.5 billion within 3 hours. It was a highly diversified orderbook across geography and investor type. Investors from 21 countries across Europe and the Middle East participated in the transaction; including 24% from Ireland, 17% from the UK, France 16%, 10% from Germany and Austria, 10% from Benelux, Eastern Europe 8% and 5% placed into Scandinavia and the remaining 10% placed into other institutional buyers. The issue was diversified across investor type with 47% issued to Banks/Bank Treasuries, 26% to Fund Manager, 11% to Central Banks, 6% to Insurance companies with the remaining 10% issued across other institutional buyers. The issue was priced at 65 basis points over mid swaps and will carry Aaa/AAA ratings from Moodys and Standard & Poors, as the note has been issued within the scope of the Irish Government Guarantee.

BoI said that at the its recent interim results announcement for the half year to 30th September 2008, senior management highlighted strong growth in customer deposits of 19% year on year. Bank of Ireland continues to reduce its reliance on wholesale funding, reducing from €85 billion to €78 billion in the period from September 2007 to September 2008. Bank of Ireland issued €5.7 billion in term funding with a maturity greater than one year in 89 individual transactions during the six-month period to 30 September 2008. 79% of the Group's loan book was funded through customer deposits and wholesale term funding with a maturity greater than one year, as at 30th September 2008. Bank of Ireland has a strong contingent liquidity position and has an eligible collateral pool of €47 billion at 30th September 2008.