Ireland hoists "For Sale" sign over stricken banks

DUBLIN (Reuters) - Ireland's banks are up for sale, the country's central bank chief said, as the government seeks to cut them down in size after their reckless lending forced the country to seek an international bailout.

"They are for sale as far as I am concerned," Patrick Honohan said on Tuesday. "I have been an advocate for a number of years for small countries to have foreign owners for their banks."

Dublin has already said it will intensify reform of the banks and surplus activities will have to be discarded.

U.S. investor Wilbur Ross told Bloomberg TV he was "very far along" in bidding for a bank in Ireland. Ross is part of a private equity consortium led by Dublin-based Cardinal Asset Management that will submit a final bid for building society EBS next month, a source told Reuters on November 11.

Dublin is seeking a buyer for EBS, and Cardinal was looking at injecting up to 600 million euros and could use it to make further deals, the source said.

But analysts said there was limited scope for the top banks to sell assets and any sales could be at a discount, or require the government to cap potential losses.

Dutch Finance Minister Jan Kees de Jager warned there will have to be pain in any consolidation.

"The amount of money needed to clean up the Irish banking system is now being studied by experts. Shareholders and holders of subordinated bonds in Irish banks will have to bleed in a restructuring process," he said.

Allied Irish Banks has already sold prize assets in Poland and the United States and last week halted the sale of its UK business due to a lack of interest.

"We are of the view that any fast-track forced disposal of assets will more than likely have to come at a discount to book-value, even after allowing for government indemnities in relation to future loan losses," said Ciaran Callaghan, analyst at NCB in Dublin.

He said that the government faces a "difficult task" in accelerating the deleveraging of assets and reducing its reliance on European Central Bank funding.

Gary McCarthy, analyst at Collins Stewart, said Honohan's comments could signal something even more dramatic, such as the entire sale of AIB.

"An option, albeit one that is difficult to execute, is that one of the banks disappears from the state balance sheet," he said. "This is an issue not just about capital, it is about the day-to-day funding as well."

Shares in Bank of Ireland tumbled 24 percent and AIB lost 19 percent as shareholders face dilution from more capital injections, that could see AIB effectively nationalized.

"That the banks will be obliged to raise further capital now looks assured; what remains unclear is the magnitude, timing and source of any required increase," Emer Lang, analyst at Davy, said in a research note.

Some of the bailout loans could be used to immediately recapitalize the banks, but most of the funds are seen as a backstop in case they need capital and to ease funding strains, officials have said.

Honohan said a so-called "bad bank" plan unveiled a year ago, known as NAMA, had not shored up lenders and had been too slow to implement.

"It has not had the result we had hoped for," he said. "Well, we have to have another go. I am not hearing too many people saying change course, you got it completely wrong, they are saying this is pretty big and it is not surprising we have not got through it yet."

Bank of Ireland, set to emerge from the crisis in the strongest position, has a partnership with Britain's Post Office that has 2 million customers and also branches in Northern Ireland. Brussels has already approved a plan that slimmed the bank in Britain but allows it to continue its UK Post Office venture, which is a long-term contract.

Britain's financial regulator sought to reassure investors that the exposure of UK banks to Ireland and other struggling euro zone economies is not a cause for concern.

(Additional reporting by Carmel Crimmins in Dublin and Marcel Michelson in Amsterdam; Editing by Mike Peacock, Elaine Hardcastle and Alexander Smith)