Irish hope line drawn under bank woes at 3rd try

Ireland reckons it is drawing a line under the crisis at its banks. Yet its third serious rescue attempt may need over 50 billion euros more and could leave just one privately owned bank standing.

Dublin on Sunday requested an international bailout. It may take weeks to finalize, but it is clear a recapitalization and restructuring of banks is at its heart, and together with replacing funding needs could suck up much of the estimated 80-90 billion euros that is on the cards.

The question in Dublin and around the euro zone is whether the measures will return Ireland's banks to health?

It is not clear how much will be pumped in, but analysts say Dublin needs to show it has more firepower than is needed behind its ailing banks. The key is restoring confidence.

"It's never a good thing to take outside assistance at a high price. But doing something has got to be a step in the right direction, you can't do any business if there's no confidence," said Gary McCarthy, analyst at Collins Stewart in Dublin.

Some 10-15 billion euros could be needed to lift domestic lenders' core Tier 1 capital ratio to over 12 percent.

The fear is that more capital will be needed if losses on residential property loans pick up as austerity plans bite. Up to now, banks' losses have largely been on their bloated commercial property books.

Dublin has said it needs to conduct more stress tests to be able to predict a final sum on capital.

Lenders have also suffered an exodus of deposits in the past six months and grown dependent on ECB funding, which has risen to 130 billion euros.

Pumping more cash into Allied Irish Banks could see it follow Anglo Irish into to full nationalization, some analysts reckon. AIB is set to be 95 percent owned by the state, and Dublin could come under pressure to sell its loan book to ease the funding burden on the state.

Bank of Ireland should emerge from the crisis in a strong position -- the dominant lender should benefit from improved margins and much reduced competition. But it needs to avoid being engulfed and get to that safer ground.

Ireland's government said on Sunday there would be "further deep restructuring" of its lenders and asset sales -- although AIB has already sold its two prize overseas assets and failed to sell a third, and all lenders are already shrinking.

Dublin's job, starting when markets reopen on Monday, is to reassure investors the latest attempt will fare better than previous efforts -- its NAMA bad bank a year ago and a state guarantee of deposits both proved to be false dawns.

[Source: Reuters, London and Dublin, 22Nov10]

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