Shareholders learn harsh rules of business life
IT'S difficult not to feel some sympathy for IL&P's shareholders, who have seen shares slump from close to a euro just two months ago to 12.5 cents yesterday.
The company looked like it had a real future because it lent to ordinary people rather than developers and because it owns a profitable life assurance arm that protects people's savings and livelihoods.
The shares had been sliding slowly over the past two years but finally tanked in March when the State-inspired stress tests conducted by BlackRock called on Irish Life to raise €4bn -- or 16 times more than the Central Bank's previous stress test in September.
Whether this is too much remains to be seen, but it effectively ended any chance of Irish Life continuing to survive without state aid.
Irish Life's new chairman, Alan Cook, called the decision "unfair" three times as shareholders complained bitterly about their fate yesterday.
Mr Cook made it plain that he believes Irish Life to be a victim of the Government's need to convince the markets that Ireland Inc is well capitalised. Describing the €4bn demand as a "killer punch", he dismissed BlackRock's scenarios as "a set of artificial assumptions".
It almost goes without saying that the last remark is meaningless twaddle. All scenarios are "meaningless assumptions" but it is a basic rule of business life, and indeed real life, that one looks at what might happen.
Almost every government assumption since the liquidity crisis began in 2007 has been overly optimistic and chipped away at Ireland's credibility overseas.
It was time for some new assumptions and it is far too early to say whether those assumptions are pessimistic or optimistic.
Certainly, it is too early for Mr Cook to make a definitive statement; he is only in the job four weeks and the bitter lessons of the past show it takes a long, long time to determine the real quality of Irish loan books.
Mr Cook revealed yesterday that Irish Life hired legal firm Goodbodys to examine the legality of the Central Bank's demands. The lack of any subsequent legal action suggests the lawyers advised the Central Bank was well within its rights.
One shareholder, Piotr Skoczylas, of London-based Scotchstone Capital, made the point repeatedly that any central bank can drive any financial services company out of business by changing the rules.
While this is undoubtedly the case, it is hardly news. Central banks regulate high street lenders and are entitled to boss them around. Especially when those lenders depend on central banks for survival.
While the Central Bank and BlackRock did what they had to do, there is little doubt that IL&P's shareholders have suffered most and may yet have good reason to feel aggrieved.