TIDMIPM TIDMIRSH TIDM54HN TIDM74SV
RNS Number : 0597E
Irish Life & Permanent Grp HldgsPLC
31 March 2011
Irish Life & Permanent Group Holdings plc ("IL&PGH")
March 31(st) 2011
Results of PCAR / PLAR 2011
Irish Life & Permanent Group Holdings plc has today received
from the Central Bank of Ireland the results of the Central Bank's
Prudential Capital Assessment Review [PCAR] and Prudential
Liquidity Assessment Review [PLAR] for the Group's banking business
for 2011. Full details of the outcomes for IL&PGH and for other
Irish banks are available from the Central Bank of Ireland at
www.centralbank.ie .
Overview
The reviews have identified a gross capital requirement of some
EUR4.0bn for the banking business of IL&PGH in order to meet
the requirements of the Central Bank to (i) achieve the target core
equity Tier 1 capital ratio of 6% (plus an additional buffer) in
the Stress Case scenario and (ii) to de-leverage the bank's balance
sheet in order to achieve a Loan to Deposit Ratio of approximately
122%.
The result will mean that the Group will have a 2013 capital
ratio in the order of 33% as measured by the Central Bank's base
case scenario.
This outcome of EUR4.0bn includes a capital requirement of
EUR243m, being the total incremental capital required by the Group
arising from the 2010 PCAR exercise for the banking business, which
was finalised last November.
The Group has undertaken to seek to meet its increased capital
requirement through an asset disposal programme which will include,
but not be limited to, the sale of its life and pensions and
investment management businesses [Irish Life Assurance and Irish
Life Investment Managers] and through undertaking a liability
management exercise in relation to the Tier 2 debt in the banking
business. Together these exercises are expected to contribute
incremental capital for the Group of a net EUR1.1bn. The balance of
capital to be raised is some EUR2.9bn. This includes the 2010 PCAR
requirement of EUR243m, which is being met from Group resources,
and EUR0.4bn of contingent debt capital, leaving a balance of
EUR2.3bn.
The Group has been advised that as it is of systemic importance
to the Irish economy, the Government will support its further
capital requirements as necessary.
Comment by Group CEO
Group Chief Executive Kevin Murphy, speaking on behalf of the
Board, described today's announcement as "extremely disappointing".
He said; "It had been our strong belief that the Group could avoid
the outcome which has arisen today. We had set out a roadmap which
would have allowed us to fix our banking business over time without
compromising the integrity of the Group or the position of
shareholders."
"Unfortunately it became clear in recent days that given the
wider systemic crisis facing Irish banks and the Irish Sovereign,
the Group would have to accept a solution designed to reassure
international investors that a line has been drawn under the Irish
banking crisis."
"The result will have major implications for our Group and our
shareholders and we will have to manage a challenging situation now
to protect the franchises of our core businesses and position
ourselves as strongly as possible to adapt to the new
situation."
Credit Losses (PCAR)
The assessment of loan losses for the period 2011 to 2013 was
undertaken by Blackrock Solutions on behalf of the Central Bank.
The result of their modelling of the stress scenario gave rise to
losses of EUR2.5bn over the 3 years compared with losses of
EUR1.6bn based on the company's modelled outcome which we consider
prudent and which has been validated by experience in the Irish and
UK markets.
In contrast, the approach taken by Blackrock implied a doubling
of defaults from current levels, the rapid foreclosure by the bank
on defaulters [despite current industry commitments not to do so]
and higher losses on the sale of repossessed homes.
The credit losses gave rise to an additional capital requirement
of some EUR1.1bn, the principle component of which arose from the
Blackrock credit stress test.
De-leverage Costs (PLAR)
The PLAR test sought to reduce the bank's loan to deposit (LTD)
ratio to circa 122% by the end of 2013. On a pro-forma basis, i.e.
including the EUR3.6bn of deposits transferred from the Irish
Nationwide Building Society in February, the opening LTD ratio of
the Group's banking business was 200%. To achieve the 2013 target
levels under the PLAR requires the sale of the bank's UK mortgage
book and its commercial mortgage book. This is assumed to be done
at haircuts of 25% and 50% respectively and gives rise to a capital
requirement of some EUR2.2bn.
Disappointingly, given the magnitude of the cost, the Group was
unable to secure the orderly run off of excess assets in the system
to avoid the up-front crystallisation of losses and the capital
need arising there from.
Buffer Capital Requirement
The third and final component of the additional capital
requirement is EUR0.7bn of buffer capital which is intended to
cover additional losses beyond 2013. This buffer is an additional
feature, not previously required, and applies to both the base and
stress scenarios. It is to comprise EUR0.3bn of equity capital and
EUR0.4bn of contingent debt capital.
Capital Generation
To begin to address the Group's capital needs as a result of the
PCAR / PLAR exercises it is intended to generate capital from (i) a
liability management programme in relation to the bank's
subordinated debt, and (ii) the disposal of the non-banking
businesses. Our expectation is that incremental capital, in the
order of EUR1.1bn, can be generated from these actions.
In the near term we would expect to initiate the liability
management exercise and commence disposal of the life and
investment management businesses by way of an IPO, which we
consider is the most likely sale process to maximise value.
Bank and Life Businesses Post Recapitalisation
As a consequence of the scale of the recapitalisation needs of
the bank, the life and banking businesses will be separated and the
current group structure unwound. This is regrettable but
unavoidable.
At the end of 2013, post PCAR / PLAR and under the base case,
the banking business will have a 33% Tier 1 Capital Ratio with
excess capital of EUR1.5bn and will be de-leveraged, being
predominantly funded by retail deposits. It will return to
profitability as the credit cycle normalises and the full impact of
the planned change / transformation programme is implemented.
The life business continues to be strongly capitalised and low
risk. It has successfully managed through the economic downturn and
has been restored to profitability. Together with the investment
management business it is the market leader in its sector and is
well positioned to continue its track record of growth and
stability.
Resumption of trading in IL&PGH shares
Following from the release of the results of the Central Bank's
stress tests the board of ILPGH is requesting that the temporary
suspension of trading of the Company's shares on the Official Lists
of the Irish Stock Exchange and the London Stock Exchange be lifted
with effect from 8.00 am on Friday 1 April 2011.
Conference call:
A conference call for investors and analysts will be held at
5.30pm today hosted by Kevin Murphy, Group CEO, and David McCarthy,
Group Finance Director.
To join the conference call, please dial in to the relevant
number below 5 minutes before and ask for the Irish Life &
Permanent call:
Ireland / Other (01) 431 1257
UK (0) 20 3140 0668
US 1631 510 7490
Pass code: 919774#
Conference call replay
A replay facility of the call will be available from 19.00 this
evening, the telephone numbers and access code are:
Ireland / Other 021 236 3074
UK (0) 20 3140 0698
US 1877 846 3918
Pass code: 376798#
Contact details:
Barry Walsh, Head of Investor Relations
Tel: +353 1 704 2678
Email: barry.walsh@irishlife.ie
Orla Brannigan, Investor Relations
Tel: +353 1 704 1345
Email: orla.brannigan@irishlife.ie
Ray Gordon, Gordon MRM
Tel: +353 1 665 0450
Email: ray@gordonmrm.ie
Disclaimer - Forward Looking Statements
This document may contain forward-looking statements with
respect to certain plans and current goals and expectations
relating to the future financial condition, business performance
and results of the Irish Life & Permanent group. By their
nature, all forward-looking statements involve risk and uncertainty
because they relate to future events and circumstances that are
beyond the control of the Irish Life & Permanent group
including, amongst other things, Irish domestic and global economic
and business conditions, market related risks such as fluctuations
in interest rates and exchange rates, inflation, deflation, the
impact of competition, changes in customer preferences, risks
concerning borrower credit quality, delays in implementing
proposals, the timing, impact and other uncertainties of future
acquisitions or other combinations within relevant industries, the
policies and actions of regulatory authorities, the impact of tax
or other legislation and other regulations in the jurisdictions in
which the Irish Life & Permanent group and its affiliates
operate. As a result, the Irish Life & Permanent group's actual
future financial conditions, business performance and results may
differ materially from the plans, goals, and expectations expressed
or implied in these forward-looking statements
This information is provided by RNS
The company news service from the London Stock Exchange
END
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