Irish Life & Permanent is a leading financial services provider in the Irish market enjoying strong market positions in life and pensions, fund management and retail banking.
The Group’s strategic focus is on the Irish personal financial services market. The Group has a low-risk business profile, with business activities mainly in unit-linked life business and retail banking.
On 31 March 2011, the Central Bank published the results of the Prudential Capital Assessment Review (PCAR 2011) and the Prudential Liquidity Assessment Review (PLAR 2011) as part of the Financial Measures Programme Report (“FMPR”). The FMPR was one of the conditions of the EU/IMF/ECB Programme of Support for Ireland. The aim of the FMPR was to place the Irish banking system in a position where it could fund itself and generate capital without undue further reliance on Irish or European public sources.
The PCAR / PLAR exercise identified a total gross capital requirement of €4.0bn for the group’s banking business in order to meet the requirement of the Central Bank to
| (i) |
achieve a core tier 1 capital ratio of 6% (plus an additional buffer) in a stressed scenario over the period to 31 December 2013 and to |
| (ii) |
cover losses associated with the requirement to de-leverage the bank’s balance sheet in order to achieve a loan to deposit ratio of circa 122.5% by 31 December 2013. |
The outcome of the PCAR / PLAR exercise has had fundamental implications for the group. Some €2.3bln of the total equity capital requirement of €3.6bln has been provided by the State and the injection of this capital on July 27th resulted in the State acquiring a 99.2% stake in the group. On the same day, the State also subscribed €0.4bln by way of contingent debt capital. The balance of equity capital is being raised from a combination of internal sources, a liability management exercise in relation to Tier 2 debt and from the sale of the group’s life assurance and fund management business.
These developments are transformational for the group as the life and banking businesses are separated. The very significant recapitalisation of the bank will however be positive for the banking business enabling it to absorb the impact of the impairment cycle and to de-leverage its balance sheet to achieve a sustainable funding base.