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State funding of Irish banks may amount to €32bn - - 1 year's tax receipts; Banks accused of "reckless" lending and "shoddy practices"
By Finfacts Team
Mar 30, 2010 - 6:14:38 PM
Minister for Finance Brian Lenihan told the Dáil this afternoon that the State may need to provide more than €18bn to support Anglo Irish Bank and together with other funding of Irish financial institutions, the total may amount to €32bn or the equivalent of one year's tax receipts. The Minister accused the banks of "reckless" lending and "shoddy practices."
The Minister said he was planning to provide €8.3bn to Anglo Irish Bank this week, but additional capital will be needed to counter losses. The current estimate is that this could involve another €10 billion over time. The €8.3bn will be paid over a number of years, reducing the cost to the Exchequer. Lenihan said he understood why people wanted to close the bank, but this would involve huge costs to the State, and also potential damage. He said he expected an exit of the bank from State hands in five to seven years.
The Minister said the results of that what has emerged from the NAMA process is both "shocking," and the losses are "horrifying"; the worst fears about the banking system had been surpassed, and the banks had played fast and loose with the economic interests of the country. But the Minister said NAMA had carried out its valuations in a "hard-headed" manner.
Lenihan said: "Some institutions were worse than others. But the fact is that our banking system, to a greater or lesser extent, engaged in reckless property development lending. In too many cases there were also shoddy banking practices. The banks played fast and loose with the economic interests of this country.
Yes, our previous regulatory system failed abysmally and it is right that the role of the regulator, the Central Bank and the Government is now the subject of independent inquiry. But the fact remains that senior figures in Irish banking made appalling lending decisions that will cost the taxpayer dearly for years to come. As I said in this House last September during the debate on the NAMA legislation: the banks should be extremely grateful for the continued support and forbearance extended by the citizens. They must now repay that debt by facilitating the economic recovery which is widely forecast to get underway in the second half of this year. The Government will insist that they do so by supplying credit to viable businesses and households in this State."
He said AIB would need to raise €7.4bn by the end of the year to meet targets. It plans to start selling off assets in Poland, the US and Britain to help raise this, but the State will have to take a stake in the bank.
Bank of Ireland will require €2.7bn in new capital, but it is hoping to meet much if this from private sources.
Irish Nationwide will require €2.6bn of new funds from the Government, most of which will be payable over 10 to 15 years while EBS will need €875m. The State will provide €100m by taking new shares in the society, which will give the Government full control.
The Minister said he was ordering AIB and Bank of Ireland to lend €3 billion each to businesses this year and next year.
The National Treasury Management Agency will manage the State's stakes in EBS and Irish Nationwide, as well as Anglo Irish Bank. Stakes in AIB and Bank of Ireland will continue to be funded and held by National Pension Reserve Fund.
The Minister said he was seeking EU approval for a modified extension of the bank guarantee scheme, which runs out in September. The extension will not cover subordinated debt.
State 'bad bank' NAMA anticipates that it will purchase €81bn of loans - - and it is likely to become Europe's biggest landlord.
Allied Irish Banks said in a statement this evening: "We will undertake an equity capital raising prior to the end of 2010 to fulfil the remaining capital requirement following disposals and other actions to that time. Our current intentions are to have an equity issue targeted at private shareholders, that would be underwritten by international investment banks or the Government, with any residual requirement met by a conversion of Government preference shares into ordinary shares. The structure, timing and terms of the this equity raising are to be further considered in conjunction with the Government. In doing so, AIB intends to respect pre-emption rights of existing shareholders in any capital raising."
