DUBLIN (MNI) – The Central Bank of Ireland said Monday that under
the expected scenario, troubled lender Anglo-Irish Bank would require a
total capital injection of E29.3 billion.

This includes E29 billion for the asset recovery bank and E250
million for the funding bank — the two parts of Anglo after it is split
in two, as the government intends. Of that amount E23 billion has
already been injected. The central bank also said an additional E5
billion could be required if there are additional, unexpected losses.

The following is a verbatim text of the statement issued Thursday
morning by the Central Bank of Ireland on the restructuring costs for
Anglo-Irish Bank:

Following the proposal of the Government, which remains subject to
EC approval, not to expand the Bank’s loan book and to split Anglo Irish
Bank into a Funding Bank and an Asset Recovery Bank, the Central Bank
has assessed the capital requirements and potential base and stress
losses that could be incurred under the restructuring plan.

This statement presents an estimate of the total required to
capitalise the two banks under a base scenario, to meet minimum capital
requirements taking account of expected losses through the cycle. It
also provides a calculation of the scale of additional loan losses that
might arise under certain stress scenarios. The review of the financial
projections for the new business model has been conducted in
co-operation with the National Treasury Management Agency and is based
on information from Anglo management and third party analysis
commissioned by the public authorities and Anglo management.

Base case estimates

The Central Bank has assessed the injection of capital required to
meet minimum regulatory capital requirements under a base, or central,
scenario taking account of expected losses through the cycle.

Capital requirements

In light of the particular nature of the Asset Recovery Bank, the
Central Bank will not impose PCAR or CEBS stress regulatory capital
requirements on this entity. The Central Bank has determined that
current Basel 2 minimum capital requirements, being 8% of Risk Weighted
Assets, will apply immediately following implementation of the
restructuring.

The Funding Bank will continue to accept deposits as a regulated
bank. Accordingly, the Central Bank has determined that in principle
the PCAR capital requirement should apply. The capital in Funding Bank
will be influenced by the evolution of the funding markets and any
expectations for a credit rating separate to that implied by State
ownership.

The plan includes a capital amount of E250 million in order to meet
the market risk and operational risk charges arising on its asset
portfolio. The capital base of the funding bank will be kept under
review, but due to the risk profile and structure of the bank any
increase would not expose the State to further losses.

NAMA losses

A principal driver of the projected capital costs for Anglo is the
NAMA “haircut” applied to property and development loans that transfer
from Anglo to NAMA. The process of transferring the remaining Anglo
property and development portfolio is being accelerated. Some 16
billion of a projected E35 billion in NAMA loans have transferred across
to NAMA to date (in tranches 1 and 2). The average haircut on these
first two tranches was 58%. Relying on advice from NAMA, the base case
scenario capital cost projections use a haircut of 67% for the remaining
tranches to transfer to NAMA.

Non-NAMA losses

Assumed loss rates on the non-NAMA book have been calculated at the
higher of CEBS base case loss rates, Anglo loss estimates and the base
case loss rates estimated by an independent third party, subject to
review by the Central Bank.

The estimates

The base case capital requirement for the Asset Recovery Bank is
E29 billion.

The base case capital requirement for the Funding Bank is E250
million.

Note that E23 billion has already been injected by the Government
into Anglo in 2009 and up to end-August 2010.

Stress cases

The Central Bank has also carried out an assessment of the
additional losses that could be incurred by the Asset Recovery Bank
under a severe hypothetical stress scenario. The exact level of losses
in a stress scenario will depend on economic circumstances, future
funding costs and the effectiveness of management in realising value
from the remaining portfolio over time.

The NAMA loan evaluation process has been accelerated and the 67%
haircut used for the base calculation has been provided by NAMA to the
Central Bank. It is based on a review of information provided by Anglo
carried out by NAMA based on discounts applied to similar assets by type
and geography. When final transfer occurs a reconciliation will be made
which may result in a further payment to or from Anglo. NAMA has advised
the Central Bank that this reconciliation is likely to be in a range of
+/ – 3%. As a result, the stress calculation assumes a hypothetical 70%
haircut on the remaining portfolio to be transferred.

The stress scenario is also sensitive to funding costs and
therefore assumes elevated on-going funding costs based on the mix of
funding sources proposed in the restructuring plan.

The other principal driver of the stress calculation is the level
of losses in the non-NAMA portfolio under a stress scenario. The Central
Bank has reviewed both Anglo and third party loan loss forecasts from an
individual loan, bottom-up (micro) perspective and from a portfolio
segment, top-down (macro) perspective.

A key element in the stress scenario is the assumed fall in
commercial property prices. For the UK and US, double dip property
values were assumed for both the micro and macro scenarios.

The micro stress scenario assumed a peak-to-trough fall of 70% in
Irish commercial property prices, with prices only recovering to 57% of
their peak level out to 2020.

The macro stress scenario assumed that Irish commercial property
prices fall to 65% off their peak values and do not recover out to 2020.

The stress loss estimate uses the more conservative of the micro
and macro calculations.

The micro analysis includes a Central Bank review of impairment and
IBNR forecasts for 2010- 2012 prepared with a view to recognising the
losses that may be incurred over the life of the loans. This approach
does not assume the loan will be realised or worked out in the 3 year
period but that the losses are recognised.

The macro analysis, prepared by a third party and reviewed by the
Central Bank, applies a methodology based on the hypothetical disposal
of the entire non-NAMA portfolio in the period through to 2020. It
identifies recovery values for portfolio segments by reference to loan
portfolio, geographic market, property price assumptions, recovery
assumptions and portfolio disposal/ run-off rates. The non-NAMA
portfolio includes assets in Ireland, the UK and the US, in business
banking and other segments in addition to commercial property. Excluding
a core portfolio of higher quality performing loans, the loss rates for
the segments of the remainder of the non-NAMA portfolio ranged from 43%
to 70%. The loan loss levels in the stress scenario used is more
conservative than the stress assumptions applied by the PCAR and CEBS.

Taking into account all these stress elements, the Central Bank
estimates that an additional E5 billion of losses, above the E29.3
billion[1] base estimate, are possible under a severe hypothetical
stress scenario. These estimates do not include any burden sharing with
subordinated debt holders.

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