Bank of Ireland Plc and Allied Irish Banks Plc, the country’s two biggest banks, are both set to pass the European Union’s stress tests on the region’s lenders, according to a person with direct knowledge of the matter.
Bank of Ireland’s 2.9 billion-euro ($3.7 billion) fundraising last month gave the lender enough capital to meet the threshold set by EU regulators, said the person, who declined to be identified because the talks are private.
Allied Irish, the second-biggest lender by market value, passed because regulators included in their calculations the 7.4 billion euros the bank plans to raise by the end of the year, said another person who declined to be identified.
The Committee of European Banking Supervisors, which is coordinating the tests, may yet alter its calculations for Dublin-based Allied Irish, one of the people said. The lender is selling overseas assets, including its stakes in Poland’s Bank Zachodni WBK SA and M&T Bank Corp. in the U.S., to raise the capital. Chairman Dan O’Connor told the company’s annual general meeting in May the bank may sell new stock to bolster capital. The Irish government has pledged to underwrite the fundraising.
The two Irish lenders are among 91 European banks undergoing stress tests to show whether they can withstand a shrinking economy and drop in the value of government bonds. Ireland’s financial regulator told the two banks to raise a combined 10 billion euros by the end of December, following the stress test of domestic lenders in March.
Bank of Ireland rose as much as 3.9 percent to 72.7 cents as of 2:20 p.m. in Dublin trading, while Allied Irish increased 0.6 percent to 88.7 cents.
“With Bank of Ireland having received EU approval for its restructuring plan last week and it appears it will get a favorable outcome from the stress tests, it is further down the road than others,” said Emer Lang, an analyst with Dublin-based securities firm Davy.
“There is still an amount of uncertainty with Allied regarding the timing of asset disposals,” she said. “The market might have hoped to hear some progress with M&T yesterday” when the U.S. lender posted quarterly results. Allied Irish reports interim figures on Aug. 4.
Jill Forde, a spokeswoman at Ireland’s financial regulator, Allied Irish spokesman Alan Kelly and Bank of Ireland spokeswoman Anne Mathews all declined to comment.
Under the tests, banks will be required to have a Tier 1 capital ratio, a key measure of financial strength, of at least 6 percent in 2011. Firms that fail to meet the standard will be required to raise capital, people briefed on the talks said this week.
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