" Irish banks have sufficient capital under new SSM rules according to reports The UK paper, The Times, in its Irish business section carries a story that both AIB and Bank of Ireland are holding sufficient capital to comply with the EU regulatory standard, CRD IV, after they received draft letters from the Single Supervisory Mechanism (SSM) in the past week. The article says that the banks have roughly one month to negotiate with the SSM on any queries about the methodology used to calculate their regulatory capital, after which, when agreement is reached, the SSM will sign off. The banks will then go to the governing council of the ECB for ratification, with the whole process expected to complete in late November or early December according to an ECB source. The article says the Department of Finance has not received the relevant correspondence from the SSM relating to AIB’s capital position and would not be able to make a decision on its cocos (€1.6bn) and preference shares (€3.5bn) until these negotiations were completed. Sources in the article suggest that it was now unlikely that AIB would be able to restructure its capital until the new year. Our own view is that both banks have adequate capital under the new rules and that AIB’s fully loaded core tier 1 ratio (converting €1.5bn of preference shares to equity) could be 12.2% by end this year, with 11.7% at BOI. Nonetheless, we regard comments that the SSM is comfortable with their capital as positive. The article suggests the consensus among analysts is that the government will look to sell AIB’s €1.6bn of cocos and up to €2.5bn of the preference shares. We would disagree, anticipating AIB merely lets its cocos mature next July, though prefunding with an AT1 issue (c.€0.9bn) and tier 2 issue (c.€0.5bn), whilst redeeming rather than selling €2bn of its preference shares and converting the residual €1.5bn into equity. That should set the stage for an IPO in Q2 or Q3 next year."
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