IL&P bid for EBS in doubt over links to state bailout
Published 25/11/2010 | 05:00
IRISH Life & Permanent's (IL&P) bid for EBS has been thrown into disarray after it emerged that the bancassurer may have to accept state help as part of the banking bailout.
Brokers yesterday suggested that IL&P could need an extra €600m to meet the new 12pc capital bar to be unveiled by the Government over the coming weeks.
The State is believed to be planning to use its €85bn bailout fund to supply this money to the banks, while banks will also be supported with a "contingency capital" fund designed to help them borrow.
Legal sources say any Government help given to IL&P could be seen as state aid by the European Commission, putting the company's EBS bid in jeopardy.
State aid rules mean the commission would have to approve any acquisitions by a bailed-out IL&P, even if the acquisition wasn't directly funded by the bailout.
"So far, the restructuring plans approved by the commission have involved disposals, not acquisitions," one competition lawyer said last night.
Even if the commission does agree to allow IL&P to go ahead with its EBS bid, any deal could still be subject to legal challenge from rival bidder the Cardinal consortium.
Cardinal is understood to have met with EC officials in Brussels yesterday, but the meeting focused on the Cardinal bid rather than IL&P.
A spokesman for Cardinal declined to comment on whether the consortium would take a legal challenge to a bailed-out IL&P winning the EBS bid.
A spokesman for IL&P declined to comment on the implications of accepting a bailout. It is understood, however, that the bancassurer does not view a cash injection from the State as "inevitable".
IL&P is believed to already have a capital ratio of about 10pc and may be able to get to the 12pc marker without state support since its life insurance business is cash generative.
But the company has been locked out of international money markets and is heavily reliant on the European Central Bank (ECB) for funding, in common with the other banks.
This suggests that investors are not reassured that IL&P has enough capital, raising the spectre of injections by the State.
Even if IL&P doesn't feel it needs the cash, it does need the support of policymakers to continue funding its operations, and so could find it hard to refuse their handout.
Market sources were already concerned about IL&P's ability to raise the €925m it needs for Permanent TSB, which it plans to merge with EBS. They had been planning to do a rights issue for the cash, but the recent collapse in IL&P's share price has made this far less feasible.
"They don't have a chance of raising equity in this market," said one analyst last night, while another described funding the deal as a "huge challenge" for IL&P.