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Bank of Ireland's Capital Buffer Sufficient to Withstand Forecasted Bad Debts

September 19, 2009

Analysis of:Bank Of Ireland Confident on Capital | www.nytimes.com

Bank of Ireland has provided evidence that the composition of their loans to be transferred to NAMA is much better than the averages for all the affected banks. Their capital will not be impacted more severly than originally estimated due to the NAMA discounts and they are right to be confident that the NAMA discounts can be absorbed without recourse to external capital raising. They will however seek to raise capital before the end of 2009 in order to reduce the Government's stake in the bank.

Bank of Ireland says no current need for rights issue

July 20, 2009

Analysis of:Bank of Ireland says no current need for rights issue | uk.reuters.com

Bank of Ireland is adequately capitalised and does not need additional capital to survive through the recession. However, the Irish Government can convert €1.5 bn preferred shares into common/ordinary stock at 0.20c a share which would represent a massive dilution of existing shareholdings as the shares are currently trading at or above €1.50. If Bank of Ireland can raise capital from existing shareholders before the end of 2009, this dilution will be avoided.

Irish Banks and the Government Guarantee

December 16, 2008

Analysis of:Bank guarantee will mean survival of the weakest | archives.tcm.ie

The Bank guarantee has focused institutional lenders and large deposit customers on the date the guarantee runs out which is 29th September 2010. The Irish Government will need to extend the guarantee beyond that date and/or ensure that the capital ratios of Irish banks are in line with the highest international standards. Particular emphasis will be on the Core Equity ratio which should be in the range of 7% to 9%. Irish Life & Permanent is sufficiently capitalised but has the highest dependence for liquidity on the Wholesale markets.

Losses associated with assets held to maturity

May 23, 2008

Analysis of:Banks Keep $35 Billion Markdown Off Income Statements | www.bloomberg.com

The article does not adequately explain all the issues. Trading Assets are assets which the institution intends to sell and mark to market adjustments are recognized in the income statement. Assets which an institution does not intend to sell, except in exceptional circumstances, are classified as Available for Sale and changes in market values are shown on the balance sheet and not the Income Statement - the reason is that market values are not a key driver in the management of the assets. What the article ignores is that assets which an institution has promised not to sell are shown at cost and maket values are ignored. Problems associated with these assets will feed through as losses in the income statement over future years. In many cases some of these losses may not be recognized until many years hence. Justification for this treatment rests on the commitment given by the institution to hold the assets to maturity and market values are therefore irrelevant.

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