Sunday 17 December 2017

Lenihan seeks go-ahead to prop up banks till year-end

Joe Brennan

Finance Minister Brian Lenihan is understood to be pressing for Brussels to give him the go-ahead to allow the extended guarantee scheme to run until the end of the year.

Sources said his department officials were arguing, ahead of the European Commission's verdict within the next two weeks, that the phasing out of the Eligible Guarantee Scheme (ELG) be aligned with the end-of-year target for the country's lenders to reach higher capital targets.

The ELG, which was launched in January and subject to six-monthly review, covers banks and building societies in issuing bonds of up to five years in duration.

Financial Regulator Matthew Elderfield originally envisaged having the banks in a position to stand on their own feet by the end of September, in line with some other European countries, such as Denmark.

However, the watchdog's concession seven weeks ago that lenders be given until the end of this year to hit new higher capital targets has affected his original target of having them weaned off the ELG by September. Banks have to raise enough capital by the end of the year to ensure their equity tier 1 capital bases -- a key measure of their financial stability -- remain above 7pc.


Mr Lenihan said at the end of March that irrespective of the lifespan of banking guarantee schemes, the ordinary Deposit Guarantee Scheme, covering up to €100,000 per depositor per institution, will continue on a permanent basis. The size of deposit coverage was hiked five-fold days after the collapse of US investment bank Lehman Brothers in September 2008.

The Irish Independent reported last month that the Department of Finance was putting banks under pressure to start issuing more unguaranteed bonds into the market, in order to gradually remove themselves from state support.

Bank of Ireland chief executive Richie Boucher, who is in the middle of a €3.56bn equity-raising, had been signalling to large investors recently he was planning along the lines of all guarantees being removed in less than four months' time, according to sources.

However, senior banking sources say all the banks, and the department, have been concerned by the effects of the Greek financial crisis on global bond markets. A spokesman for the department declined to comment.

A mounting queue of lenders lining up to tap the bond markets is waiting to see the outcome of the National Treasury Management Agency's (NTMA) monthly bond auction today, in which it aims to raise up to €1.5bn.

EBS is next in line among the country's lenders to go out into the debt markets, followed by either Bank of Ireland or Irish Life & Permanent, sources said last night.

Irish Independent

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