Bank of Ireland may have to ask the government to inject more capital after it transfers up to 16 billion euros ($23.6 billion) of loans to a planned "bad bank", it said as it posted an underlying first-half loss.
Shares in Ireland's biggest bank by assets and market value and rival Allied Irish Banks have slid on concerns that delays in the launch of the National Asset Management Agency (NAMA) would set back attempts to raise capital privately and lenders in the UK are already tapping the market for capital.
"While the group's strong preference would be to raise capital from private sources … ultimately it may be required to seek capital from the Irish government," Bank of Ireland said.
It said the discount NAMA will apply to the loans transferred remained uncertain, adding that a complete failure to launch NAMA would hit its funding.
"The risk appetite among the international funding markets for Ireland and Irish financial institutions, including Bank of Ireland, could be adversely affected by any uncertainties that could arise if NAMA was not to proceed as expected," said the lender, which has received 3.5 billion euros of capital from the state in return for a 25 percent indirect stake.
Bank of Ireland now expects a loan impairment charge of about 6.9 billion euros until the end of March 2011, including 1.4 billion already taken in the year to March 2009 and another 1.8 billion in the half year to September 2009.
The impairment forecast compares with an earlier projection of 6 billion euros for the three-year period and is subject to significant change due to the NAMA process.
Bank of Ireland posted a pretax profit of 80 million euros for the first half. However, without including a gain from repurchasing core Tier 1 debt, it had an underlying loss before tax of 979 million euros, or 96.6 cents per share.
Markets earlier expected Bank of Ireland to launch a rights issue this year but since uncertainties over NAMA are not expected to be cleared up until after its launch, sometime after the middle of this month, analysts now expect Bank of Ireland's rights issue to be delayed until 2010.
