IL&P Group Holdings

Results of PCAR / PLAR 2011

RNS Number : 0597E
Irish Life & Permanent Grp HldgsPLC
31 March 2011


Irish Life & Permanent Group Holdings plc ("IL&PGH")


March 31st 2011


Results of PCAR / PLAR 2011




Irish Life & Permanent Group Holdings plc has today received from the Central Bank of Ireland the results of the Central Bank's Prudential Capital Assessment Review [PCAR] and Prudential Liquidity Assessment Review [PLAR] for the Group's banking business for 2011. Full details of the outcomes for IL&PGH and for other Irish banks are available from the Central Bank of Ireland at .




The reviews have identified a gross capital requirement of some €4.0bn for the banking business of IL&PGH in order to meet the requirements of the Central Bank to (i) achieve the target core equity Tier 1 capital ratio of 6% (plus an additional buffer) in the Stress Case scenario and (ii) to de-leverage the bank's balance sheet in order to achieve a Loan to Deposit Ratio of approximately 122%.


The result will mean that the Group will have a 2013 capital ratio in the order of 33% as measured by the Central Bank's base case scenario.


This outcome of €4.0bn includes a capital requirement of €243m, being the total incremental capital required by the Group arising from the 2010 PCAR exercise for the banking business, which was finalised last November.


The Group has undertaken to seek to meet its increased capital requirement through an asset disposal programme which will include, but not be limited to, the sale of its life and pensions and investment management businesses [Irish Life Assurance and Irish Life Investment Managers] and through undertaking a liability management exercise in relation to the Tier 2 debt in the banking business.  Together these exercises are expected to contribute incremental capital for the Group of a net €1.1bn.  The balance of capital to be raised is some €2.9bn. This includes the 2010 PCAR requirement of €243m, which is being met from Group resources, and €0.4bn of contingent debt capital, leaving a balance of €2.3bn.


The Group has been advised that as it is of systemic importance to the Irish economy, the Government will support its further capital requirements as necessary.



Comment by Group CEO


Group Chief Executive Kevin Murphy, speaking on behalf of the Board, described today's announcement as "extremely disappointing".  He said; "It had been our strong belief that the Group could avoid the outcome which has arisen today.  We had set out a roadmap which would have allowed us to fix our banking business over time without compromising the integrity of the Group or the position of shareholders."



"Unfortunately it became clear in recent days that given the wider systemic crisis facing Irish banks and the Irish Sovereign, the Group would have to accept a solution designed to reassure international investors that a line has been drawn under the Irish banking crisis."


"The result will have major implications for our Group and our shareholders and we will have to manage a challenging situation now to protect the franchises of our core businesses and position ourselves as strongly as possible to adapt to the new situation."



Credit Losses (PCAR)


The assessment of loan losses for the period 2011 to 2013 was undertaken by Blackrock Solutions on behalf of the Central Bank. The result of their modelling of the stress scenario gave rise to losses of €2.5bn over the 3 years compared with losses of €1.6bn based on the company's modelled outcome which we consider prudent and which has been validated by experience in the Irish and UK markets.


In contrast, the approach taken by Blackrock implied a doubling of defaults from current levels, the rapid foreclosure by the bank on defaulters [despite current industry commitments not to do so] and higher losses on the sale of repossessed homes.


The credit losses gave rise to an additional capital requirement of some €1.1bn, the principle component of which arose from the Blackrock credit stress test.



De-leverage Costs (PLAR)


The PLAR test sought to reduce the bank's loan to deposit (LTD) ratio to circa 122% by the end of 2013. On a pro-forma basis, i.e. including the €3.6bn of deposits transferred from the Irish Nationwide Building Society in February, the opening LTD ratio of the Group's banking business was 200%. To achieve the 2013 target levels under the PLAR requires the sale of the bank's UK mortgage book and its commercial mortgage book. This is assumed to be done at haircuts of 25% and 50% respectively and gives rise to a capital requirement of some €2.2bn.


Disappointingly, given the magnitude of the cost, the Group was unable to secure the orderly run off of excess assets in the system to avoid the up-front crystallisation of losses and the capital need arising there from.



Buffer Capital Requirement


The third and final component of the additional capital requirement is €0.7bn of buffer capital which is intended to cover additional losses beyond 2013. This buffer is an additional feature, not previously required, and applies to both the base and stress scenarios. It is to comprise €0.3bn of equity capital and €0.4bn of contingent debt capital.






Capital Generation


To begin to address the Group's capital needs as a result of the PCAR / PLAR exercises it is intended to generate capital from (i) a liability management programme in relation to the bank's subordinated debt, and (ii) the disposal of the non-banking businesses. Our expectation is that incremental capital, in the order of €1.1bn, can be generated from these actions.


In the near term we would expect to initiate the liability management exercise and commence disposal of the life and investment management businesses by way of an IPO, which we consider is the most likely sale process to maximise value.



Bank and Life Businesses Post Recapitalisation


As a consequence of the scale of the recapitalisation needs of the bank, the life and banking businesses will be separated and the current group structure unwound. This is regrettable but unavoidable.


At the end of 2013, post PCAR / PLAR and under the base case, the banking business will have a 33% Tier 1 Capital Ratio with excess capital of €1.5bn and will be de-leveraged, being predominantly funded by retail deposits. It will return to profitability as the credit cycle normalises and the full impact of the planned change / transformation programme is implemented.


The life business continues to be strongly capitalised and low risk. It has successfully managed through the economic downturn and has been restored to profitability. Together with the investment management business it is the market leader in its sector and is well positioned to continue its track record of growth and stability.



Resumption of trading in IL&PGH shares


Following from the release of the results of the Central Bank's stress tests the board of  ILPGH is requesting that the temporary suspension of trading of the Company's shares on the Official Lists of the Irish Stock Exchange and the London Stock Exchange be lifted with effect from 8.00 am on Friday 1 April 2011.





Conference call:


A conference call for investors and analysts will be held at 5.30pm today hosted by Kevin Murphy, Group CEO, and David McCarthy, Group Finance Director.


To join the conference call, please dial in to the relevant number below 5 minutes before and ask for the Irish Life & Permanent call:


Ireland / Other (01) 431 1257

UK                   (0) 20 3140 0668

US                   1631 510 7490


Pass code:      919774#


Conference call replay

A replay facility of the call will be available from 19.00 this evening, the telephone numbers and access code are:


Ireland / Other 021 236 3074

UK                   (0) 20 3140 0698

US                   1877 846 3918


Pass code:      376798#



Contact details:



Barry Walsh, Head of Investor Relations

Tel: +353 1 704 2678

Email: [email protected]



Orla Brannigan, Investor Relations    

Tel: +353 1 704 1345

Email: [email protected]


Ray Gordon, Gordon MRM

Tel: +353 1 665 0450

Email: [email protected]







Disclaimer - Forward Looking Statements

This document may contain forward-looking statements with respect to certain plans and current goals and expectations relating to the future financial condition, business performance and results of the Irish Life & Permanent group.  By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of the Irish Life & Permanent group including, amongst other things, Irish domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, inflation, deflation, the impact of competition, changes in customer preferences, risks concerning borrower credit quality, delays in implementing proposals, the timing, impact and other uncertainties of future acquisitions or other combinations within relevant industries, the policies and actions of regulatory authorities, the impact of tax or other legislation and other regulations in the jurisdictions in which the Irish Life & Permanent group and its affiliates operate.  As a result, the Irish Life & Permanent group's actual future financial conditions, business performance and results may differ materially from the plans, goals, and expectations expressed or implied in these forward-looking statements

This information is provided by RNS
The company news service from the London Stock Exchange