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News : Irish Last Updated: Mar 31, 2010 - 6:23:00 AM

 Irish 'bad bank' NAMA takes 47% discount or 'haircut' on initial toxic property loan transfers; Financial Regulator announces new banking capital requirements
By Finfacts Team
Mar 30, 2010 - 5:35:39 PM

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The Irish 'bad bank' National Asset Management Agency (NAMA) said today that it will acquire over 1,200 individual toxic property loans with a nominal value of €16 billion for a consideration of €8.5 billion, representing an average discount or 'haircut' of 47%. It completed the transfer of the initial tranche of loans from Irish Nationwide Building Society and EBS Building Society on Monday, March 29th.  Meanwhile, the Financial Regulator has today published the results of its review of banking capital requirements for the next three years until 2012. New capital levels are being set for some of the main banks covered under the government guarantee to ensure that they can withstand future losses, even under very stressed conditions.

NAMA said it will transfer the first batch of loans from Bank of Ireland on Friday next, 2nd April and expects to complete the acquisition of the first tranche of loans from the two remaining participating institutions - Allied Irish Banks Plc and Anglo Irish Bank – by early April. NAMA expects to complete the transfer of the remaining loans from all five institutions by the end of the year and no later than end February 2011, the deadline set by the EU Commission. In total, the Agency anticipates that it will purchase €81 billion of loans.

Speaking today, Frank Daly, Chairman of NAMA, said:“NAMA is a key element in resolving the difficulties of the Irish banking sector. Thanks to the considerable effort, dedication and skill of all involved in NAMA, the loan transfers have commenced within a month of EU approval. The Board of NAMA’s guiding principle to date has been to safeguard the interests of taxpayers by taking a scrupulously objective view of the value of the underlying assets and the security attaching to each and every loan. We will remain resolutely focused on taxpayers’ interests as our work continues in the months ahead.”

The Financial Regulator said a level of 8% of core tier 1 capital is to be targeted for Irish banks by the end of this year is to be applied. This level of capital must be met after taking account of all future losses, from both NAMA and non-NAMA portfolios. This capital will be principally in the form of equity - -  a 7% equity requirement. Equity is the highest quality form of capital, and the emerging international standard. In addition, further amounts, specific to each institution, are to be added on in the calculation of future loan losses. The new requirements also mean that banks cannot go below a level of 4% core tier 1 capital in a severely stressed scenario.

Speaking today, Governor of the Central Bank, Patrick Honohan said,“After a period of great uncertainty, these actions and announcements create a secure platform on which confidence will be built. While the costs that are today revealed are certainly significant, they are manageable and affordable for the Irish State. They are certainly a necessary measure to put the banking crisis behind us and provide for a stronger economy.”

Head of Financial Regulation, Matthew Elderfield said, “It is important that our banks move to a strong capital position as soon as possible and that we draw a line under the Irish banking crisis. Sufficient capital is an essential ingredient to ensure that banks can withstand future losses. We have applied a robust, realistic and prudent capital standard informed by our own detailed analysis and by emerging best practice internationally.”

Prudential Capital Assessment Review (PCAR) Results by Bank

The capital requirements resulting from the PCAR exercise are:

Allied Irish Banks plc (AIB):

(1) An additional €7.396 bn of equity capital to meet the base case target of 7% equity, before taking account of projected asset disposals, and
(2) €4.865 bn of Core Tier 1 capital, less any equity generated under paragraph 1 excluding conversion of preference shares held by the Government, to meet the base case target of 8% Core Tier 1. This additional Core Tier 1 capital will also satisfy AIB’s stress case target of 4% Core Tier 1.

The Governor & Company of the Bank of Ireland (BOI):

(1) An additional €2.66bn of equity capital to meet the base case target of 7% equity, and,
(2) In meeting this requirement provided at least €0.25 bn of new Core Tier 1 is raised, then Bank of Ireland also meets (a) the base case target of 8% Core Tier 1, and, (b) the stress target of 4% Core Tier 1.

EBS Building Society (EBS):

(1) An additional €875m of Core Tier 1 capital to meet the base case target of 8% Core Tier 1, and,
(2) Contingent capital of €120m of Core Tier 1 capital to meet the stress case target of 4% Core Tier.
Other Institutions for which the PCAR has not been completed:

Anglo Irish Bank Limited (Anglo):

The PCAR for Anglo has not yet been undertaken because discussions on its restructuring plan between the bank, Government and the European Commission are still at a formative stage. If the bank’s preferred option – which is to carve out a much smaller but viable going concern banking entity with the remainder becoming an asset management entity – is approved by the European Commission, the PCAR will be applied to the balance sheet of the new banking entity.

As an interim measure, Anglo Irish Bank will require an additional €8.3 billion of capital to meet current minimum capital requirements, pending conclusion of the restructuring discussions and the application of the PCAR.

Irish Nationwide Building Society (INBS):

The Financial Regulator has estimated the capital shortfall to meet current minimum capital requirements for INBS at €2.6 billion. In line with all credit institutions, INBS must comply with this minimum regulatory capital requirement on an ongoing basis.

Irish Life & Permanent plc (ILP):

ILP was not included in the first wave of PCAR as it has not received a government capital injection and is not taking part in NAMA.
The PCAR process for ILP will be completed over the coming months as the institution’s restructuring plan is developed.

Irish Life & Permanent said the Financial Regulator has advised Irish Life & Permanent plc that a Prudential Capital Assessment Review will be carried out on the institution over the coming months in the context of the institution’s restructuring plans.

In advance of that full review, the group has had initial contact with the Regulator on this matter. Based on initial discussions with the Regulator in respect of likely capital requirements for the group as currently structured, it expects that its current capital resources are sufficient to withstand anticipated base case and stress test scenarios; both of which suggest loan losses substantially ahead of the group’s current models

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