EU COMPETITION commissioner Joaquín Almunia said increased State funding for AIB was the bank’s “only available option” after the Nama discount on its loans increased and the sale of its British unit was delayed.
In a letter to Labour MEP Alan Kelly, Mr Almunia said the serious deterioration in market perceptions of Ireland and AIB itself made it “impossible” for the bank to secure new capital on the markets.
Mr Kelly, who is standing in the Tipperary North constituency in the general election, said the National Asset Management Agency (Nama) was to blame for the latest AIB bailout. “What amounts to a saving for the taxpayer by Nama becomes a loss to the taxpayer as the Government pumps pension funds into banks that will never return,” he said.
“The Government’s failure to identify the problem early enough resulted in AIB passing the stress test, only for Nama to come along and see the mess the loan book was in.”
The MEP wrote to Mr Almunia in October, questioning how AIB could have passed EU and national stress tests last year only to see a further requirement for capital by September. This requirement increased again by the year end when the bank was, in effect, nationalised. In an effort to boost confidence in Ireland’s surviving banks and diminish their reliance on emergency European Central Bank funding, the decision was taken as part of the EU-IMF bailout to increase their above-European norms.
The commissioner attributed AIB’s increasing requirement for State capital to developments “unforeseen” in March last year when the bank passed Irish stress tests. The EU authorities endorsed the results of this examination when they stress-tested Europe’s largest banks last July.
With that exercise in question over the failure to highlight the requirement for additional capital in Ireland’s banks, the EU authorities plan to apply wider criteria to a new round of tests next month.
Mr Almunia wrote: “Back in March 2010, it was believed that AIB could meet the additional capital need set by the Financial Regulator without further State capital by a combination of (i) sale of assets (Polish, US and UK subsidiaries); (ii) market capital-raising exercise; and (iii) conversion of a portion of the State existing €3.5 billion preference shares (which had been injected in 2009 for the first recapitalisation).”
Three unexpected developments led the bank to lean on the State for new capital, he said.
“First, the recapitalisation amount had to be increased by €3 billion as a result of the revision of the haircut used in the PCAR exercise [ie, the prudential capital assessment review by Irish authorities] for the transfer of Nama assets . . . Secondly, the sale of the UK business proved more challenging . . . Finally, the market perception of AIB and of Ireland as a sovereign issue deteriorated sharply, making any attempt by AIB to raise capital on the markets impossible. State funding of the recapitalisation became the only available option for AIB.”
