Tuesday 17 October 2017

ECB's Trichet says Irish banks need recovery plan now

Top banker demands urgent sanctioning of restructuring

Brendan Keenan, Joe Brennan and Emmet Oliver

European Central Bank president Jean-Claude Trichet has urged Brussels to get on with sanctioning the restructuring plans of Ireland's banks.

People familiar with the situation said the most senior central banker in Europe has personally stressed the need for urgency on a decision from the European Commission.

Bank of Ireland and Allied Irish Banks were forced to submit massive restructuring plans to the EU late last year on foot of the Government's €3.5bn investment in each. The plans must prove how they can restore their profits and pay back taxpayers' money within five years.

But Ireland suffered a major setback over the weekend when Bank of Ireland was forced to pay a dividend on its Government investment in shares rather than cash -- because the Commission had not signed off on its restructuring plan.

Shares in BoI tumbled over 6pc yesterday as investors baulked at the fact that the State now has a 16pc direct stake in BoI -- diluting existing investors.

AIB, which faces a similar dilemma when its first dividend payment falls due in May, saw its stock drop almost 3pc.

All told, the State now effectively has a 34pc stake in BoI. Before it took ownership of the 184m-worth of new shares yesterday, the Government held the 'warrants' that gives it the right to take a 25pc holding in four years' time.

But on a fully-diluted basis -- accounting for the both tranches of State shares as a percentage of the total amount of stock to be issued -- the 25pc has been watered down to 21.9pc and the 15.7pc is diluted to 12.1pc.

Mr Trichet's frustration with Brussels echo comments by fellow ECB board member Jose Maria Gonzales Paramo in Dublin last week.

"Let's hope the Commission comes soon with its assessment and a green light for the proposals," he said.

Decision

Still, the ECB and the Government are likely to be relieved as it emerged yesterday that Brussels is set to deliver its decision on the equally-important National Asset Management Agency (NAMA) project by the end of this week.

Brussels' decisions on the banks' restructuring plans have been held up by the delay in ratifying the new Commission.

But sources say officials are struggling to make sure that rescue measures approved for one country do not set precedents which might be used in other to give inappropriate state aid to banks, or enable banks to transfer public finds to investors.

There is also the problem of "moral hazard," if taxpayer funds are used to save shareholders and creditors from the consequences of reckless behaviour by banks.

In addition, Brussels is trying to ascertain where Anglo Irish Bank, which has also submitted an ambitious and more problematic restructuring plan, will fit into the broader sector in future.

Last night it also emerged that Bank of Ireland plans to sell two-year notes in a benchmark offering this week, priced in US dollars.

A benchmark sale is typically at least $500 million.

Irish Independent

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