Irish Life and Permanent is considering the sale of the pensions and investments business, Irish Life, and its fund management business, Irish Life Investment Managers, to raise the potential capital bill facing the company after tomorrow's Central Bank stress tests.
This amounts to more than two thirds of the overall business of the company. The estimated capital shortfall is expected to be somewhere between €2 billion and €3 billion to meet mortgage losses under a worst-case scenario and the cost of reducing the size of the bank. The company's banking unit, Permanent TSB, has the worst funding of the six Irish lenders with loans far outstripping deposits.
The sale of Irish Life and Irish Life Investment Managers, both profitable businesses and the biggest players in their respective markets in Ireland, would have to take place before a decision is made on the amount of capital that must be injected by the Government and the determination of the size of the stake taken by the State.
The scale of the capital required is likely to push the company into majority Government control with the State taking a share of more than 50 per cent.
Allied Irish Banks and Bank of Ireland both were required to dispose of businesses and assets over the past year as part of the recapitalisation of both institutions. Irish Life and Permanent would have to do the same before Government decides how much capital would be required for the business.
Trading in the bank's shares has been put on hold in Dublin and London until Friday. The bank, the nation's only government-guaranteed lender to avoid a bailout so far, shed 45 per cent of its share price yesterday after reports the stress test results would push it into Government ownership.
In a statement this morning, the lender said it "notes the recent media comment" on its expected capital requirement after the stress tests.
The tests "are not completed and the quantum of capital that may be required by the group, and the source of that capital, is not yet finalised".
Minister for Enterprise, Jobs and Innovation Richard Bruton said this round of stress tests have to be so tough and fair that they remove any doubts of the state of the country's beleaguered banking sector.
"We need finally an honest assessment, one that is based on best international practices," he told German newspaper Handelsblatt. "Afterwards there can be no feeling that people are looking at Irish banks through rose-tinted glasses ... Our ambition is to clean the table and we will do that."
Shares in AIB closed the session 2.6 per cent higher, at 18.9 cent. Bank of Ireland fell almost 11 per cent to 22 cent.
The company is expected to need between €2 billion and €3 billion in capital to cover higher mortgage losses at its bank, Permanent TSB, and the cost of selling excess assets to reduce its size over the next three years.
Permanent TSB today moved to reassure deposit holders and mortgage account customers that there would be no changes to their position.
Chief executive David Guinane said regardless of the outcome of the stress tests, the position of deposit holders was guaranteed.
"Clearly these are difficult days for the entire banking industry in Ireland but I can absolutely reassure customers - including those customers who have recently joined us from Irish Nationwide - that there nothing that may occur over the coming days will in any way change the deposit guarantee that they have enjoyed in recent months or that they would enjoy in any other bank in Ireland," he said.
"This process is about ensuring that Irish banks are even stronger in the months and years ahead and capable of withstanding the most difficult circumstances imaginable. It doesn't mean that those circumstances are expected but it does mean that even were they to emerge, the banks will have the strength to get through them."
The governing council of the European Central Bank (ECB) has yet to decide whether it will proceed with a new medium-term liquidity facility for Ireland’s banks, an informed source said last night.
Amid intensive discussions about a years-long support programme tailor-made for the Irish lenders, uncertainty remains over the legality of providing such aid for banks which are not held to be financially sound.
There are fears in some quarters that such a scheme would leave the ECB open to legal attack under the EU treaties as an initiative for the direct monetary financing of government liabilities. In this context, legal advisers are reviewing Article 123 of the Treaty on the Functioning of the EU, which prohibits “overdraft facilities or any other type of credit facility with the ECB” in favour of central governments or the public undertakings of member states.
The ECB governing council has yet to see the Government’s proposed restructuring plan for the banks. It wants a specific commitment from the Government to execute such a plan in its entirety in the years ahead.
Mr Bruton said it was hard to ease Irish banks' dependence on central bank liquidity as long as they were undercapitalised.
"It is very difficult to improve banks' liquidity need, when there is a feeling that banks do not have enough capital," he said.
Majority Government control of Irish Life & Permanent is now considered inevitable given the amount of cash it must raise following the capital and funding stress tests. The share price collapse yesterday – down 34 cent to 41 cent – gives the company a market value of €110 million.
The Department of Finance moved to reassure IL&P depositors last night, saying that the stress tests would set capital requirements to make the banks sustainable and safeguard deposits.
IL&P is expected to name Alan Cook, the former managing director of Post Office, the financial services company owned by the Royal Mail in the UK, as the company’s new chairman after Gillian Bowler steps down tomorrow.
