Our banks need to be recapitalised at once, says top businessman
Brian Cowen: capital for banks 'a matter for discussion'. Photo: ERIC FEFERBERG/AFP/Getty Images
Friday October 31 2008
Senior Irish businessman Philip Lynch said Irish banks "need to be recapitalised immediately" so they can begin lending again and shore up the economy, which has fallen into recession.
"Fundamentally sound businesses are being starved of cash," Mr Lynch, who heads up investment firm One51, told a 'Farmers Journal' conference in Mullingar yesterday.
He suggested that the State play a role in the injection of fresh capital into banks by tapping the €18.7bn National Pension Reserve Fund. "The sooner the recapitalisation, the earlier the recovery will start," he said.
The comments came as Taoiseach Brian Cowen said the question of capital for the banks is a "matter for discussion now and in the future". The Government has repeatedly said in recent weeks that State involvement in any such recapitalisation would be a last option.
Mr Cowen told a forum of business leaders organised by the 'Economist' magazine's Intelligence Unit that European Union measures to rescue banking systems had been described correctly as a "toolbox" by German Chancellor Angela Merkel.
"It is a toolbox to be used by countries in a way that suits their own particular circumstances," he said. The EU's 13-point plan includes three core elements -- liquidity support, inter-bank lending guarantees and recapitalisation of distressed banks.
Write-offs
Analysts believe Irish banks will need to raise between €1.5bn and €14bn of additional capital over the next few years as bad loans soar amid the property and wider economic downturn. Goodbody Stockbrokers estimates the four publicly-quoted banks will have to write off up to €11.2bn in loans by the end of 2010.
Irish Government bonds have widened considerably in recent days amid growing speculation the State may have to invest, or underwrite an equity raising, in the country's lenders.
Ireland's 10-year bonds have moved from 4.48pc to 4.66pc within the past week, compared to 3.77pc for the German equivalent. They have become more expensive than the 4.64pc yields of Portugal, though remain below those of Italy (4.97pc) and Greece (5.33pc).
Spreads have widened to about 90 basis points against the German benchmark from about 45 points before the Government's €500bn guarantee was announced.
Ross Abercromby, a senior analyst at ratings agency Moody's told the Irish Independent yesterday that Irish banks "may come under pressure to increase capital given the increased (capital) ratios at other banks across Europe, and due to possible regulatory pressure."
- Joe Brennan and Brendan Keenan
