Written answers

Wednesday, 14 September 2011

Department of Finance

Banks Recapitalisation

9:00 pm

Photo of Terence FlanaganTerence Flanagan (Dublin North East, Fine Gael)
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Question 123: To ask the Minister for Finance if he will deal with a matter regarding expenditure of public money (details supplied); and if he will make a statement on the matter. [23797/11]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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As the Deputy is aware, under the previous Government, some €43.6 billion was injected into the Irish banks by the end of 2010. The Prudential Capital Assessment Review (PCAR), which was carried out by the Central Bank and reported in March 2011, identified an additional capital requirement of €24 billion. This means that the expected total capital needs in March 2011 amounted to €70.3 billion. While the Government is committed to ensuring that the banks would be fully capitalised up that level, the Government has instigated processes which have reduced and will further reduce the cost to the State. Direct contributions were sought from subordinated debt holders through burden sharing/liability management exercises (LME) and where possible, by seeking private sector investors.

Prior to the PCAR, burden sharing with subordinated bondholders raised c. €9.7 billion of core tier 1 capital. Since the PCAR announcement, burden sharing with bondholders has realised an additional c. €5 billion. AIB/EBS completed their LME in July resulting in a total capital gain of €2.15 billion. Bank of Ireland announced on 8 July that it generated circa. €2 billion from LME. Further burden sharing with outstanding subordinated bondholders is expected to raise additional equity capital. Irish Life and Permanent completed their LME on 24 August with a €1bn gain from €1.2bn of subordinated debt. den sharing with outstanding subordinated bondholders is expected to raise additional equity capital. Irish Life and Permanent completed their LME on 24 August with a €1bn gain from €1.2bn of subordinated debt.

Under the PCAR, Bank of Ireland required an additional €5.2bn of capital. In July 2011, private investors agreed to an investment of up to €1.123 billion in Bank of Ireland's Tier 1 capital. This transaction, in addition to other equity participation from existing shareholders/bondholders of some €600m, ensured that the State's commitment was significantly reduced while retaining a significant equity shareholding in the banks.

The commitment from the Irish State is lower than initially expected as a result of the LME exercises with subordinated bondholders conducted since 31st March 2011 and private sector investment in Bank of Ireland. Out of the total identified capital of €70.3 billion, at the end of July actual capital investment was circa €63 billion. There will be further stress tests in 2012 by the Central Bank of Ireland through a PCAR and also by the European Banking Authority. I believe that the Irish banks will have sufficient capital to meet those stress tests.

Through the processes I have referred to above, the Government has ensured that the recapitalisation burden has not fallen exclusively on the Irish taxpayer.

I have forwarded for the Deputy's attention a copy of my presentation to the Oireachtas Committee on Finance, Public Expenditure and Reform on 1st September 2011 on progress made in restructuring of the banking sector.

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