State must sell off stake in banks 'as soon as possible'
Published 02/12/2010 | 05:00
THE State will have to sell off its stakes in Irish banks "within the shortest timeframe possible" as part of the €85bn bailout deal.
Details of the State's commitment to exit the banks emerged last night as the Government published a detailed memorandum of understanding on the terms of the deal
The State will have to sell its stake in the banks as soon as it can do a deal that gets reasonable value for the taxpayer and doesn't threaten the country's financial system.
The memorandum shows that the banking system will be subject to intense oversight from the European Central Bank (ECB), the International Monetary Fund (IMF) and European Commission (EC).
Banks will be forced to provide reams of data to our bailout partners on a monthly basis -- so they will have advance warning of any problems.
Banks who want to hang on to any assets beyond Irish retail banking will also have to convince the IMF, ECB and EC, as well as our own Central Bank.
The document also describes how the bailout will deal with so-called subordinate bondholders, the lenders who hold the riskiest Irish bank debt.
And it details plans to give the Central Bank new powers to install a "special manager" to failing banks or seize their assets to prevent another Anglo-style implosion.
Some €35bn of the total bailout money has been ring-fenced for the Irish banks, a provision that could see most of our banking system nationalised early next year.
Even if only €10bn is used, the State could add a 96pc stake in AIB and a 75pc stake in Bank of Ireland to a portfolio that already includes 100pc of Anglo Irish Bank, Irish Nationwide and EBS.
The document also stresses that our international rescuers will be front and centre of any reform of Irish banking.
In February, all of Ireland's banks have to submit plans on the future shape of their operations including arguments for which assets they should sell and which ones they should be allowed to keep.
On the controversial topic of dealing with subordinate bondholders, the memorandum says losses may be imposed as early as "end 2010".
In an annex to the document, the agreement says "forced burden sharing" may be imposed on those bondholders, depending on the level of state support for their banks.
Finance Minister Brian Lenihan last night stressed that it was "the unanimous view" of the ECB and EC that it would be impossible for Ireland to force losses on so-called senior bondholders, who loaned billions to banks at lower interest rates in exchange for greater security.
"There is simply no way that this country, whose banks are so dependent on international investors, can unilaterally renege on senior bondholders against the wishes of the ECB," he added.
"Those who think we could do so are living in fantasy land."