Business Irish

Sunday 31 August 2014

Merrill Lynch: Advisors told government bank rescue would ‘only’ cost €16bn

Merrill Lynch paid €7m for advice

Published 20/03/2014 | 11:55

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Merrill Lynch's headquarters in New York. Photo: Getty Images
Merrill Lynch's headquarters in New York. Photo: Getty Images

MERRILL Lynch told the Government in 2008 that it would cost a maximum of €16.4bn to rescue its banks. In the end it cost four times this amount.

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The Government paid Merrill Lynch a hefty €7.3m in return for banking advice in 2008 and 2009.

The expensive advice was contained in a 45-page presentation to the Department of Finance given in late 2008. In the November 2008 presentation, Merrill estimated the recapitalisation costs at between €6.5bn and €16.4bn. The firm weighed a series of merger options between Irish lenders as well as the creation of a nationalised bank to wind down toxic commercial real estate loans.

Since then, taxpayers have been forced to pledge about €64bn to rescue the nation’s banks after the worst real estate crash in Western Europe.

“Merrill Lynch completely underestimated the capital shortfalls within the banks, but the whole exercise was rushed after the guarantee,” Sinn Fein finance spokesman Pearse Doherty told Bloomberg in an interview. Mr Doherty obtained the information in a Dail question. “The role of external advisers, including bank auditors, really needs to be looked at as part of the banking inquiry.”

Victoria Garrod, a spokeswoman for the owner of Merrill Lynch, declined to comment.

Merrill estimated now-defunct Anglo Irish Bank would cost €5.63bn to rescue, a fifth of its final cost. It assumed Allied Irish Banks would need €5.62bn. Within three years, the state had injected almost €21bn into the bank, in which it now has a 99.8pc stake.

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