Bank of Ireland Agrees to Keep Capital High at Its N.H. Banks

WASHINGTON - Prodded by the Federal Reserve Bank of Boston, the Bank of Ireland has agreed to maintain a high leverage ratio at its banks in New Hampshire.

The move is in keeping with regulators' intent to require higher leverage capital - primarily stockholders' equity - at weaker banks.

50% Extra Is Required

The Bank of Ireland signed a written agreement to set its leverage at least 50% above the standard for the strongest banks, reflecting concern about the New Hampshire economy. The Irish bank's U.S. affiliate, First NH Banks Inc. of Manchester, recently grew by about $1.5 billion in assets, to $4.5 billion, with the acquisitions of the failed Amoskeag Bank and BankEast.

The New Hampshire agreement, made public on Thursday, requires tangible Tier 1 capital to equal 4.5% of assets at Bank of Ireland First Holdings, the direct parent of First NH.

That compares with a minimum leverage ratio of 3% for banks that rate the best on the five-point Camel rating scale, which is based on capital, asset quality, management, earnings, and liquidity.

Interpretation of Move

Regulators sought the agreement because "they know New Hampshire and New England aren't going to get good in a hurry," said a First NH Banks official, speaking on condition of anonymity. "They want to make sure that until the situation turns around, there is some kind of capital discipline."

In addition to the consolidated capital requirement, Bank of Ireland agreed to control the ratio of classified loans to capital and loss reserves at each of its three U.S. banking units.

Also, Ireland's second-largest bank agreed to clear about $130 million in foreclosed properties from the books of its U.S. holding company.

New Role for |Bad Bank'

Roughly $90 million of the troubled real estate assets were housed in Hilco Inc., a "bad bank" subsidiary of first NH Banks. Another $35 million to $40 million in assets - including some acquired in October when First NH took over two failed New Hampshire banks - is being transferred from First NH to Hilco.

Hilco will now be merged into IBI Interfunding Co., a direct subsidiary of Bank of Ireland.

One bank analyst said the Boston Fed's move to strengthen First NH banks by persuading the parent company to take over sour assets was "not commonplace.

"If there were more bank holding companies owned by foreign banks, the Fed might try to do this more often," said Gerard Cassidy, a bank analyst in Portland, Me., with Tucker, Anthony & Co.

Policy Formalized

The First NH official said the agreement formalizes steps Bank of Ireland has taken to support its U.S. banking units since it entered the New England market in 1988.

"The New Hampshire banking environment is just awful, and Bank of Ireland has been infusing capital over the last few years," said the banker. The banks' leverage ratios have consistently been in the range of 4% to 5%, he said.

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