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Irish Banks' Recapitalisation Day: State may provide two-thirds of annual tax revenues of €32bn to five of the six Irish lenders
By Michael Hennigan, Founder and Editor of Finfacts
Mar 30, 2010 - 5:53:25 AM
Greek Prime Minister George Papandreou (2nd row) shakes hands with Jerzy Buzek, President of the European Parliament, at the European Council summit in Brussels, Thursday, March 25, 2010. Taoiseach Brian Cowen is on Papandreou's left.
This is Irish Banks' Recapitalisation Day when the State will provide further funds of about two-thirds of annual tax revenues of €32bn to five of the six Irish lenders.
Today is the striking dénouement to the reckless misgovernance of the Celtic Tiger period and one difference between Ireland and Greece is that Greek Prime Minister George Papandreou has credibility as a leader of a newly elected government while Taoiseach Brain Cowen has virtually none as he was one of the senior political leaders who left the construction sector lead the economy to ruin. The wounded Taoiseach is propped up by the Green Party which entered a Faustian Bargain with the dominant party Fianna Fáil in 2007 and appears to be determined to extend the pact as far as possible to delay inevitable oblivion.
The amount of capital to be provided to the five financial institutions: Allied Irish Banks (AIB), Bank of Ireland, Anglo Irish Bank, Educational Building Society and Irish Nationwide Building Society could amount to €20bn or more; AIB could be in line for up to €7bn, Bank of Ireland €3bn, Anglo Irish€9bn, EBS and Irish Nationwide about €3bn.
The Minister for Finance Brian Lenihan will provide details of the recapitalisation to the Dáil this evening; the toxic loans agency NAMA will detail the discounts on the first loans transferred from the lenders before the Minister’s statement and the Financial Regulator will provide information on the basis for the capitalisations.
The State already owns Anglo Irish; it has an indirect stake of 25 per cent in AIB and a stake of 34 per cent in Bank of Ireland.
The State may control up to 70 per cent of AIB when today's plan is implemented; 40 per cent of Bank of Ireland and it will have majority control of the two building societies.
It is reported that a discount of 40-50 per cent is expected to be applied by NAMA to the first tranche of AIB's toxic loans it acquires. The discount on the first loans from Bank of Ireland and EBS will be about 35 per cent, while Irish Nationwide will face a discount of up to 60 per cent.
"We have to put the banks in a position where they can fund themselves with confidence in world markets," Minister Brian Lenihan told RTÉ Radio on Monday. Asked if he could envisage taking a majority stake in AIB or other lenders, Lenihan said: "Whatever is required to be done will be done by the Irish state."
Irish Nationwide, in theory owned by its members, had 80 per cent of its loan book in commercial lending - - with about half of that in respect of property in the London area.
The investments in AIB and BoI will be in addition to €7bn that was provided in 2009. There is a reasonable chance of eventually turning a profit on the funds.
The funding for Anglo Irish Bank of €9bn, in addition to €4bn in 2009, may well just vaporise.
Even after transferring its property loans to NAMA, the Quinn Group, controlled by billionaire Sean Quinn, will be its biggest customer with a debt of €2.8bn.
Besides the funding of the banks, NAMA will likely become Europe's biggest landlord with over €40bnin assets.
Despite all the moves, it is foolish to expect lending to return to normal soon.
Allied Irish Banks (AIB) was formed in 1966, through a merger of the Provincial Bank of Ireland, Royal Bank of Ireland, and Munster & Leinster Bank.
Bank of Ireland was founded in 1783 and the former premises of the defunct Irish Parliamentat College Green, Dublin, were purchased for £40,000 in 1803.
The bank was officially appointed official banker to the Irish Government in 1922 and in 1969, the National Bank of Ireland, Hibernian and Bank of Ireland merged to form the Bank of Ireland Group.
We wrote on Monday and it's worth repeating: Historians John Paul McCarthy and Tomás O'Riordan have written that in the early year of the State's existence that contacts between the Irish Banks Standing Committee and the Department of Finance were abrasive. At a meeting in 1923, members of the committee questioned the ability of Bandon native and Cambridge graduate Joseph Brennan (then 36), Department Secretary and his Assistant Secretary, James J. McElligott (then 30), a native of Tralee, wondering "if the two young gentlemen who waited on them spoke with authority." The banks initially hesitated underwriting government loans without a British Treasury guarantee, a politically insensitive demand they later stopped insisting upon. The Free State Government had managed to raise the first national loan of £10 million without much assistance from the banks.
"Irish banks are resilient and have good shock absorption capacity to cope with the current situation" - - Patrick Neary, Chief Executive, Irish Financial Regulator, September 19, 2008: - two days after the collapse of US investment bank Lehman Brothers.
