Sign in Subscribe
Banks (Finance)

Irish Life And Permanent Faces Bailout as Central Bank Stress Tests Reveal Multi-Billion Euro Holes in Bank's Books

Strategic Insights

— 2 min read

The taxpayer will be asked to bail out another bank as a massive multi-billion euro hole in Irish Life And Permanent's books is to be revealed by the Central Bank's stress tests tomorrow. Shares in IL&P collapsed yesterday after it was leaked that the bank would be unable to escape a huge surrender of its equity to the Government. The bank requires a capital injection of billions to survive, money the institution itself will be unable to obtain, meaning it too must join the queue of cap-in-hand former stock market titans to get its portion of cash from the taxpayer.

Key Takeaways:

  • IL&P requires a capital injection of billions to survive, which the institution itself cannot obtain, forcing the Government to take a large stake in the bank.
  • The bank's shares collapsed by 45% yesterday, one of the worst falls ever suffered by an Irish financial stock in a single day, to close at 41c.
  • The bank's stress test results are expected to reveal a further €18 billion is required to shore up the balance sheets of Ireland's remaining banks, including IL&P, Bank of Ireland, Allied Irish Bank, and the Educational Building Society.
  • Almost all of IL&P's €29 billion loan book is made up of mortgages, with the bank having the worst loan-to-deposit ratio in the Irish financial system.
  • The Government already virtually owns Allied Irish Bank (more than 90%) and has a large stake in Bank of Ireland (around 36%), and the Educational Building Society is totally under State control.
  • Professor Morgan Kelly, a UCD economist, warned last year of a mortgage arrears time-bomb that could leave institutions even deeper in hock.
  • IL&P's strategy of avoiding lending to big developers was seen as a way to escape the fate of other banks, however, it appears the last domino is about to fall.

Statistics:

  • IL&P's shares collapsed by 45% yesterday, one of the worst falls ever suffered by an Irish financial stock in a single day.
  • The bank's shares closed at 41c, down from 74c the day before.
  • The bank's loan book is made up of almost €29 billion in mortgages.
  • The bank has the worst loan-to-deposit ratio in the Irish financial system, with two euros loaned out for every euro on deposit.
  • The Government is expected to take a large stake in IL&P.
  • Bank of Ireland's shares have dropped from 39c to 25c in the last fortnight, and Allied Irish Bank's price has tumbled to just 18c.
  • For investors, the main retail banks have lost 99% of their value from their peak in autumn 2007.

Sources:

  • The taxpayer will be asked to bail out yet another bank, as a massive multi-billion euro hole in Irish Life And Permanent's books is to be revealed by the Central Bank's stress tests tomorrow. (The Irish Mail on Sunday)
  • Shares in IL&P collapsed yesterday after it was leaked that the bank would be unable to escape a huge surrender of its equity to the Government. (The Irish Mail on Sunday)
  • The bank's shares collapsed by 45% yesterday, one of the worst falls ever suffered by an Irish financial stock in a single day. (The Irish Mail on Sunday)
  • The bank's stress test results are expected to reveal a further €18 billion is required to shore up the balance sheets of Ireland's remaining banks, including IL&P, Bank of Ireland, Allied Irish Bank, and the Educational Building Society. (The Irish Mail on Sunday)

Read more