Irish rejig

24 November 2010 By George Hay Follow @gfhay

Dublin has two big banks with liquidity problems, and two smaller ones with deposits and little else. Rejigging the liabilities could give giants AIB and Bank of Ireland safer funding profiles. And a bailout would provide time to shrink their balance sheets in an orderly manner.

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The Irish government is poised to take a majority stake in Bank of Ireland as part of the country's forthcoming bailout by the European Union and International Monetary Fund, Reuters reported on Nov. 24.

Brian Lenihan, the Irish finance minister, said on Nov. 22 that structural reform of Ireland's banking sector either by sale or transfer to a bad bank was "on the agenda". He added that Irish banks in future should focus on domestic lending and discard other activities.

Alan Dukes, a former Irish finance minister, told a meeting in Dublin that the country needed to take "massive and decisive action" to produce at least two viable ongoing banks.

Noncore portfolios of loans could be put up for sale at deep discounts, according to Ciaran Callaghan, an analyst at NCB in Dublin. These could feature government guarantees to limit future loan losses.

Allied Irish Banks said at its trading update on Nov. 19 it was postponing efforts to offload its UK business. It has not disclosed the exact impact of disposals of its Polish business or sales to NAMA, the Irish bad bank, on current loan book and deposit figures, so these are approximate.

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