State could own three banks by the end of Lenihan's speech
Published 30/03/2010 | 05:00
THE State will be on the road to owning three banks by the time Finance Minister Brian Lenihan concludes his speech today.
Many smaller lenders will get their government capital, meanwhile, not via upfront cash, but by using government IOUs.
So-called 'promissory notes' will promise payment to the likes of Anglo and Irish Nationwide over 10 years, thereby saving the Exchequer the crippling initial costs.
The Government already owns Anglo Irish outright and, by signalling fresh investment in Irish Nationwide and EBS, those two institutions will effectively be owned and run by the Government.
In December, members of these two building societies voted for resolutions allowing directors to give the minister what are called 'special investment' shares.
In effect these shares give him almost unlimited powers to control these two building societies, leaving members out in the cold.
This is nationalisation by any other name, although that term is unlikely to be used in the speech by the minister, for fear of alarming the capital markets.
The shares allow Mr Lenihan to force the board to carry out his instructions without taking account of member's interests.
He will also get powers to appoint and remove directors, including the chief executive or the chairman. He will even have the power to veto any decision taken by members.
Crucially, he can force either society to merge with another society.
Irish Nationwide will have the most severe discount on its loans, with the average 'haircut' on the first tranche hitting about 60pc, while EBS will be hit more softly -- with a discount of about 35pc.
Unlike Irish Nationwide, Irish Life & Permanent will remain intact after the minister's speech and is not part of the National Asset Management Agency (NAMA).
However, this institution does benefit from the government guarantee.
Anglo Irish was nationalised in January 2009 and the only new element for this bank is that it will get a promise from the minister of new capital, possibly to the tune of €9bn.
But this is Anglo Irish Bank's version of what is required, and it is not certain whether the Government agrees.
Anglo and Irish Nationwide face an unknown future, although both institutions have ideas about creating new business models. Anglo Irish wants to become a small business lender, although it has little experience in this area.
Irish Nationwide believes it could become a mortgage lender, supplying credit to first-time buyers. It would do this by combining with EBS -- already a major mortgage lender.
It is possible at some point that Permanent TSB could also become part of this new arrangement, often dubbed a 'third force' in Irish banking.