€ 17.5bn in new funds come from pension reserves

RECAPITALISATION:?The majority of the 24 billion that will be used to recapitalise the Irish State-owned banks is to come from National Pension Reserve Fund (NPRF).

Pension reserve is to contribute EUR 17.5 billion euros. This will include 7 billion euros, was placed on deposit with the various institutions of the former finance minister Brian Lenihan.

The Government wants to make up deficiencies through a combination of asset sales by institutions, private investment of existing or new shareholders, which is probably only in the case of Bank of Ireland – burden-sharing of subordinated bond owners and a drawdown of external funding from the EU-IMF.

On a conference call with analysts yesterday suggested the Central Bank of Ireland and National Treasury Management Agency, trailing bondholders could contribute up to € 5 billion of burden-sharing. But senior bondholders will not be asked to take a haircut on their holdings.

It is clear that the situation on financing are very liquid.

Department of Finance emphasized yesterday the Government's desire not to have to draw on funds from the EU-IMF deal to capitalise the banks.

But such a solution is that it is required.

As a part of the EU-IMF deal, was € 35 billion allocated to the banks. Half of this was financed by the pension reserves.

Much now depends on the appetite for private investment and how successful AIB, Bank of Ireland and Irish Life Permanent is to sell their assets.

In the meantime, the expected dependence on Irish banks to the ECB short-term financing to grow in the years ahead of us before tapered as the Government's deleveraging the programme enters into force in the sector.

Department of Finance spokesman said this is due to the fact that, in the short term, the banks must pay back more debt than they are likely to travel through asset sales.

However, early next year this dependence is expected to move in a "downward course" as active run-offs and deleveraging is achieved, and the banks begin to regain access to wholesale funding market, he said.

Department of Finance has identified around € 77 billion of non-core loans across the AIB, Bank of Ireland, EBS and Irish life Permanent which it believes to be disposed of. It predicts that about 73 billion of this would be deleveraged at the end of 2013 through disposals and run-offs.

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