Colm Doherty: cutback strategy

AIB will face a €3.3bn shortfall in capital – or three times its current market value – even if the bank was to off-load all its Polish and American interests as well as its banking operations in Britain and First Trust Bank in the north, a leading independent analyst has revealed.

The figures by Barclays Capital in London point to AIB struggling to raise the €7.4bn in new capital that the Financial Regulator Matthew Elderfield demands the bank raise by the end of the year.

Barclays Capital in London estimates that the sale of the 70%-owned Bank Zachodni WBK in Poland, which managing director Colm Doherty last month described as "the jewel in the crown", will contribute only €1.27bn to the higher key reserves, or so-called equity tier 1 capital, that the bank must now hold. Barclays expects AIB to sell its UK bank – which includes First Trust – at a €470m loss.

The Barclays' figures also suggest that AIB, after transferring its commercial property loans to Nama, will only hold €480m in key buffer reserves this year as it seeks to sell almost all its operations outside the Republic.

"Basically, that is about zero" in reserves, said Karl Whelan, the UCD economics professor. He forecasts the government will take at least a 75% stake in AIB and predicts there is now "a good chance" that the government will fully nationalise the bank later.

It comes as other leading commentators have also questioned whether AIB's strategy, led by managing director Colm Doherty, to cut the bank back to a Republic of Ireland stump will cost taxpayers more because the bank will be selling assets at fire-sale prices during the worst slump since the 1930s.

John FitzGerald, research professor at the Economic and Social Research Institute, said it "was not clear" that AIB "should be allowed" to sell off almost all its operations. The bank may be serving the interests of its shareholders, not taxpayers, by selling off most of its operations, he said.

In all, Barclays estimates the sale of BZWBK in Poland and the disposal of its 22.5% stake in M&T Bank in the US for €989m will contribute only €2.2bn in extra capital before it accounts for deductions of €470m for its disposal of loss-making AIB UK and a small €74m capital reduction in selling off its interest in the American Credit Bank in Bulgaria.

In estimates published on the same day as the Barclays' figures, AIB's Goodbody Stockbrokers estimated that AIB's sales would add as much as €4.7bn to the bank's capital, reducing the €7.4bn target to a more manageable €2.7bn.

Barclays also estimates that the disposal of AIB UK reduces the bank's so-called risk-weighted assets by a huge €18.4bn, which in turn helps reduce the bank's capital-raising target by about €2bn from €7.4bn to €5.5bn. The London analysis suggests that after gains from disposals the bank therefore needs to raise an additional €3.3bn in capital.

Mike Soden, the former Bank of Ireland chief executive, said that it was not the best time to be trying to sell banking assets. "But if doing it saves the institution, in a bad set of circumstances, then you have to do it," he said.