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AIB is falling apart, of that there is no question. The focus in Ireland on the streets and in the media is on Anglo and maybe a wee bit on Quinn but if you have your perspective prioritized; AIB is the real issue, in my view, Anglo is a dead duck but AIB still appears to be a global asset. The scope to make hysterical and possibly slanderous remarks is certainly there in regard to AIB getting its capital requirements estimates (the inverse of loss estimates) so massively wrong. I will avoid that. Ireland in terms of its banking sector is now entirely dependent upon the European Commission, who are required to validated the business plans of the Irish banks. This should be a lesson for UK banks, you cant afford to get your capital estimates wrong, its an error which is potentially terminal not only for you but for your bank. The FT is reporting here that AIB which has an equity shortfall of €7.4bn, compared with a market capitalisation of just €1.2bn, could end up more than 70 per cent government-owned. An article in the Toronto Star which can be found here does an invaluable deconstruction of the position in Ballsbridge right now;-

The Irish government detailed the first stage of its plan to buy troubled loans from Irish banks through the National Asset Management Agency on Tuesday, which will wipe out substantially all of shareholders' equity at Allied Irish Banks AIB . Subsequently, Allied Irish published its plan to boost capital levels. While the plan is largely in line with our expectations, we anticipate leaving AIB unrated for now, as it is not yet clear how big of a discount AIB will have to take on subsequent tranches, or how successful the bank will be at raising capital.

Under the agreed-to terms, Allied Irish will raise EUR 7.8 billion of new equity (compared to the EUR 7.0 billion of book equity reported at year end) by the end of 2010. The bank plans to do so, in part, by selling its untraded U.K. corporate business, its 22.7% stake in M&T Bank MTB (worth about EUR 1.6 billion at today's prices), and its 70.4% stake in Poland's Bank Zachodni WBK, worth about EUR 2.6 billion by our calculations. While the actual sales could bring in more or less than these estimates, AIB remains likely to need additional equity before the end of the year. We expect the bank to try to raise funds from private investors, perhaps through a rights issue, but note that the Irish government has explicitly said it will step in to buy shares if necessary. At best, AIB's existing shareholders will end the year with significantly diluted stakes in a smaller, less profitable business. At worst, if AIB's mortgage book deteriorates more than anticipated, the bank could find itself looking at an even greater capital shortfall.

Its a sorry state of affairs.

The Irish Independent