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AIB's capital requirements now believed to be 7.5 billion euro

  • 29-03-2010 10:09pm
    #1
    Fjoc74
    Closed Accounts Posts: 4 ✭


    The Business & Finance website is reporting that "AIB's capital requirements are now believed to be 7.5 billion euro, which means that the Government will have to nationalise up to 80% of the bank. The market had been pencilling in a capital requirement of around 4.5bn euro for AIB but the non-Nama losses were much higher than expected."


Comments

  • #2
    serfboard
    Registered Users, Registered Users 2 Posts: 4,739 ✭✭✭serfboard


    Yep - looks like the haircut on the loans will be bigger than previously expected, and so the banks will need more money which only the government will be willing to provide. Hence, effective nationalisation, and hence the massive drop in bank shares today.


  • #3
    waster81
    Registered Users, Registered Users 2 Posts: 749 ✭✭✭waster81


    What are the government getting for the capital into the banks is it in preference or ordinary shares.

    To be honest i had expected a much larger drop in the share prices of the banks to below a €1.


  • #4
    Idbatterim
    Registered Users, Registered Users 2 Posts: 18,127 ✭✭✭✭Idbatterim


    Say hypothetically all BOI & AIB customers had 10k under their mattresses and went in and lodged that tomorrow, what effect exactly would this have?


  • #5
    woodseb
    Registered Users, Registered Users 2 Posts: 876 ✭✭✭woodseb


    Idbatterim wrote: »
    Say hypothetically all BOI & AIB customers had 10k under their mattresses and went in and lodged that tomorrow, what effect exactly would this have?

    it might improve their funding situation so they wouldn't have to raise rates but it wouldn't improve their equity which has been wiped away by loan losses


  • #6
    PeakOutput
    Registered Users, Registered Users 2 Posts: 7,639 ✭✭✭PeakOutput


    woodseb wrote: »
    it might improve their funding situation so they wouldn't have to raise rates but it wouldn't improve their equity which has been wiped away by loan losses

    wait, would it no tbe the other way around? an increase in deposits or capital is what allows them loan and that is wat the goverment is giving them 7bill for?


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  • #7
    woodseb
    Registered Users, Registered Users 2 Posts: 876 ✭✭✭woodseb


    PeakOutput wrote: »
    wait, would it no tbe the other way around? an increase in deposits or capital is what allows them loan and that is wat the goverment is giving them 7bill for?

    nope, there are two sides of a bank's balance sheet...

    Assets : which are the loans it holds

    Liabilities : which are how it funds the assets made up of deposits, debt raised of the markets and finally equity

    Their equity is all but written off by all of the bad loans (assets) so this must be replaced to meet international standards (at least 8% of equity) - at the moment it can't sustain any more losses because as the equity is wiped out the next group that are written off against the losses are the debt and deposit holders most of whom rank equally which obviously isn't viable - that's why the government has to replace the equity

    If the banks got a massive amount of deposits in, it would reduce the cost of funding as it would need much lower debt levels to fund lending but it wouldn't provide any buffer capital against losses. Ideally you start a bank with high deposits levels and start up equity and build up equity levels through profits from earning the spread by lending and higher rates than what you borrow (give to depositors) at, but the banks are a long way away from that situation at the moment


  • #8
    SLUSK
    Closed Accounts Posts: 1,156 ✭✭✭SLUSK


    Fjoc74 wrote: »
    The Business & Finance website is reporting that "AIB's capital requirements are now believed to be 7.5 billion euro, which means that the Government will have to nationalise up to 80% of the bank. The market had been pencilling in a capital requirement of around 4.5bn euro for AIB but the non-Nama losses were much higher than expected."

    http://www.marketwatch.com/investing/stock/AIB?countrycode=IE Here it says AIB has a market cap of €1.1 billion. Why would you want to prop it up with €7.5 billion?


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