UPDATE 5-Ireland puts $100 bln price on bank rescue

* Irish banks need to raise 24 billion euros extra capital

* ECB suspends ratings requirements on Irish debt

* No formal medium-term ECB facility for bank funding

* Senior bondholders in AIB, Bank of Ireland safe

* S&P downgrade looms

(Recasts with more detail)

By Padraic Halpin and Conor Humphries

DUBLIN, March 31 (Reuters) – Ireland put a 70-billion-euro
price on protecting its banks from future shocks on Thursday and
promised a radical overhaul of the sector, trying to persuade
investors it has the nation’s financial crisis under control.

The European Central Bank (ECB) offered a compromise funding
solution for Irish lenders but its proposal fell short of a
formal medium-term funding facility that would have gold-plated
Dublin’s big bang announcement.[ID:nDEPVEE70W]

Ireland’s central bank said fresh stress tests showed the
country’s four remaining lenders needed to recapitalise to the
tune of 24 billion euros, in line with expectations. That comes
on top of the 46 billion euros taxpayers have already poured
into the sector, giving a total bill equal to $100 billion.

“The cost is huge,” Finance Minister Michael Noonan told
parliament. “(But) the price will be worth paying if we get a
functioning banking system.”

Under a restructuring of the sector, two “pillar” banks will
be left, and all lenders will be either nationalised or majority
owned by the state.

Investors are sceptical that Ireland, still struggling to
emerge from the worst recession in the industrialised world and
a recipient of an EU-IMF bailout last year, can handle one of
the world’s costliest banking crises.

Noonan admitted the stakes were still high and much depended
on the overall economy. “If growth crashes we are all in trouble
in this country,” he said.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For stories on Ireland's debt crisis click [ID:nLDE68T0MG] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Europe’s debt crisis is spreading to its banks as sovereign
rating downgrades hit countries’ ability to access credit
markets, pushing them into the arms of the ECB which is the
lender of last resort.

The ECB said in a statement it would continue to accept
Irish sovereign debt as collateral, regardless of its credit
rating, and promised the banks continued access to liquidity.

This fell well short of a medium-term funding facility for
lenders which had been expected, but it should give some comfort
that Irish banks’ near 160 billion euros in funding from the ECB
and the Irish central bank remains intact.

“It’s a compromise solution that probably eases some of the
most pressing concerns,” said Austin Hughes, chief economist at
KBC Bank. “The critical element will be how the rating agencies
deem this support.”

Internal disagreements within the ECB Governing Council
torpedoed the medium-term facility, euro zone official sources
told Reuters.

S&P has already warned it could strip Ireland of its A-
rating after the results of the bank recapitalisation plan.

The agency downgraded Portugal to one notch above junk to
BBB- this week and a cut to its banks followed on Thursday,
raising the heat on Lisbon which is widely expected to follow
Greece and Ireland into an EU aid programme.


Ireland’s debt as a proportion of its Gross Domestic Product
(GDP) output will hit 111 percent in 2013 from close to 100
percent currently if the state has to pump the full 24 billion
euros into the banks.

Noonan said he hoped between 5 and 6 billion euros could be
raised through imposing losses on holders of subordinated bank
debt and a couple of billion more through private capital.

Bank of Ireland (BKIR.L: Quote, Profile, Research) was working on a plan to raise
capital privately and Irish Life & Permanent (IPM.N: Quote, Profile, Research) is to sell
its life and pensions and investment management businesses.

Noonan dropped a previous threat to impose losses on senior
unsecured bonds in Bank of Ireland and Allied Irish Bank
(ALBK.I: Quote, Profile, Research), which will form the core of the new financial system.

“If you are constructing two new banking pillars for the
economy you probably don’t want to penalise people that the
banks in future may be relying on to fund them,” Noonan said.

But he said Dublin would consider imposing losses on such
bondholders in nationalised Anglo Irish Bank if that lender
required more capital on top of the 29 billion euros it has
already swallowed.

The ECB is opposed to hitting any senior bonds in banks
because of the risk investors would panic that similar moves
could be carried out in other euro zone countries.

Senior debt ranks equally in law with bank deposits, which
Ireland guaranteed during the 2008 crisis. However, subordinated
debt is a more risky investment and any losses for its holders
should inflict less of a market shock.

But analysts said Dublin could yet have to tap AIB and Bank
of Ireland’s 11 billion euros of senior unsecured bonds.

“It is going to be very, very difficult for those banks to
raise the capital required and at some point a restructuring
conversation needs to happen,” said Michael Hewson, market
analyst at CMC Markets in London.

Ireland’s central bank said the four commercial banks would
be required to maintain a minimum capital ratio of 6 percent
under a stress test aiming to show they could withstand
potential losses from a worsening economy.

Under the stressed scenario AIB needs 13.3 billion euros,
Bank of Ireland 5.2 billion, EBS building society 1.5 billion
and Irish Life & Permanent 4 billion.

The government plans to merge AIB with EBS to form one
pillar of its banking sector with Bank of Ireland the second.

Under the restructuring plans Ireland’s banks will have to
deleverage huge sums. Bank of Ireland will have to shed 30
billion euros of assets by 2013 while AIB and EBS combined will
have to shed 23 billion euros of assets by 2013.
(Additional reporting by Steve Slater; Writing by Carmel
Crimmins; editing by David Stamp)

UPDATE 5-Ireland puts $100 bln price on bank rescue