Published March 31, 2011
March 31, 2011 – By Carmel Crimmins and Conor Humphries
DUBLIN (Reuters) - Ireland's stress tests on Thursday will reveal an additional 20-25 billion euro ($28-35 billion) hole in its banks capital and will be followed by a radical restructuring of the sector, the Irish Independent newspaper reported.
The insurance arm of Irish Life <IPM.I> will also be sold and the government will also create special vehicles to take 80 billion euros off the balance sheets of the four main banks, the newspaper said.
The overall figures were roughly in line with analysts' estimates of the scale of the further boost Ireland's banks would need and is still well inside the 35 billion euros set aside for banking losses by Dublin under its international bailout.
The government will publish what is meant to be the final bill for propping up its banks at 1530 GMT (11:30 a.m. ET), in a last-ditch bid to convince investors it can avoid a damaging restructuring that would deepen Europe's debt woes.
Ireland's new government has pledged to outline a "credible" plan for sorting out its financial system on the back of fresh stress tests but its plausibility will rest on any concessions Dublin can win from its paymasters in Brussels and Washington.
A bailout from the European Union and the International Monetary Fund late last year failed to resolve the financial crisis and Dublin's dismal record in calling the end of its banking woes, now in their third year, mean skepticism is high.
"Once more we cross our fingers and hope that this will be the defining moment and we will be able to begin to look beyond the current difficulties," said Austin Hughes, chief economist at KBC Bank.
"The crucial element is that we get a coherent response on this from government and Europe."
ECB MONEY TO COST
Dublin is relying on the European Central Bank (ECB) to give medium-term funding to its banks to help cap the cost of recapitalizing them below the 35 billion euros set aside for the lenders in an 85 billion-euro bailout package.
An announcement on such a facility, revealed to Reuters by a euro zone central banking source last week, may come after the results of the stress tests are published at 1530 GMT in Dublin.
But government sources told the Irish Independent that the funding scheme was subject to last minute talks amid concern that legal difficulties could delay its launch. It said the funding would likely carry a premium over market interest rates and may only be available to solvent banks.
Even with a credible banking bill and funding from the ECB, Ireland's Prime Minister Enda Kenny still needs to persuade European partners to cut the cost of their loans to the euro zone struggler and possibly extend the loans' duration to convince investors Ireland can tackle its debt mountain.
The Irish Independent said Bank of Ireland <BKIR.I>, Allied Irish Banks <ALBK.I>, Irish Life & Permanent <IPM.I> and EBS Building Society <EBSBS.UL> will need between 20 billion and 25 billion euros in additional capital after the tests.
Six analysts surveyed by Reuters have put a figure of 23 billion euros on the bill.
Anglo Irish bank, which is being wound down at a cost the government says could exceed 30 billion euros, on Thursday announced a loss of 17.7 billion euros for 2010, the largest in Irish corporate history. Its unaudited results had said the loss would be 17.6 billion.
(Editing by Patrick Graham)