30 November 2010

Ireland rescue package: some more details

Further to yesterday’s information contained in the EU press release, I found some additional details that may be of interest to readers:
  • The EUR 10 billion capital injection will raise core tier 1 ratios to at least 12%.
  • The Irish National Pension Reserve Fund will provide EUR 12.5 billion.
  • Any banks whose core tier 1 is seen falling below 10.5% will receive additional capital through a EUR 25 billion contingent capital facility established through the program. The stress tests will include a third party review of asset quality to garner additional credibility.
  • Liability management of subordinated bank debt will be "more widely applied" than just Anglo-Irish bank.
  • A special distressed banking law will be introduced in 2011 for the small 'credit unions' sector
  • The 5.8% interest rate is an average since the maturity of loan will range from 4 ½ years to 10 years.
  • Ireland will have an extra 12 months, i.e. until 2015, to lower its deficit down to 3%.
  • Ireland will discontinue its financial assistance to the EU loan to Greece.
The Irish contribution coming out the INPRF represents 50% of its total assets: as noted yesterday it is a disgrace. I do not understand how Ireland accepted this.
Still, this agreement has to be accepted by the Irish Parliament; the vote should be passed successfully despite only 2 seats majority (2 independents).

The new loan participation breakdown for any new EU rescue is:
Belgium
3.64%
Germany
28.43%
Ireland

Greece

Spain
12.47%
France
21.35%
Italy
18.76%
Cyprus
0.06%
Luxembourg
0.26%
Malta
0.09%
Netherlands
5.99%
Austria
2.91%
Portugal
2.63%
Slovenia
0.49%
Slovakia
1.04%
Finland
1.88%
France and Germany bear 50% of the total burden: unsustainable, at least for French finances if its AAA rating is to be retained (necessary for the EU lending vehicle to be AAA rated); I have therefore difficulties to see how the EUR 750 billion package decided in May could be raised in its entirety. My conclusion is that European countries cannot afford a Spanish bailout.
© Markets & Beyond
 
Source:
Deutsche Bank: Thoughts on Ireland's aid programme
https://gm-secure.db.com/welcome.html