Bank of Ireland says new ownership structure may damage capital ratios

Bank of Ireland and Allied Irish Banks have agreed to structural changes with EU authorities that may hit their capital ratios.

The EU’s Single Resolution Board, which works to limit the impact of potential bank failures on the wider economy, recommended a resolution plan for the two banks based on a “single point of entry bail-in strategy through a group holding company”.

AIB gave no details in response to the recommendation, but the BOI said it will establish a holding company to become its parent company in response to the decision, which was also agreed with the Bank of England.

It said the change “may adversely impact” the group’s reported total capital and tier 1 capital ratios as it is forced to stop counting a proportion of subordinated debt on its balance sheet.

The company said the impact will depend on the timing of the change, absolute capital levels and capital structure when the change takes place, as well as potential “mitigating actions” the bank may take.

AIB and BOI, which had to be rescued by the Irish government during the financial crisis, were the second- and third-worst performing banks in last summer’s EU-wide stress tests, though bankers in Dublin said the format of the tests unfairly penalised banks that had suffered in the past.