Friday 22 February 2019

Lenihan to sanction huge bank rescue plan

Fionnan Sheahan and Joe Brennan

The Government is on the brink of launching a multi-billion euro rescue plan for the country's banks as the share price of a second major institution fell below €1 yesterday.

Officials are going through an expert report forensically examining the loans given out by the banks to work out their levels of bad debt.

Finance Minister Brian Lenihan held crisis talks last night with Central Bank governor John Hurley and Financial Regulator Patrick Neary.

It is understood the Government has now accepted that it will have to put public money into the banks.

The Opposition is piling pressure on for action to end the "credit famine" and ensure banks are able to give loans to businesses.

Taoiseach Brian Cowen told the Dail the Government was seeking a solution to the liquidity crisis and was looking at a range of possible measures.

Mr Lenihan has a number of different options to recapitalise the banks. These include buying ordinary shares, preference shares, or co-investing with private money.

Market sources believe the State would prefer to buy preference shares, as this would allow it to take an annual dividend even as banks scrap a payout to ordinary shareholders over the lifetime of the two-year guarantee scheme.

It is understood that the National Treasury Management Agency (NTMA) has been actively reviewing ways the €18.7bn National Pension Reserve Fund (NPRF) could be tapped as part of a recapitalisation plan.

The fund has about €1.5bn of cash, but the review is focused on finding ways to borrow off the back of some of its assets.

Analysts estimate banks will need to raise between €5bn and €14bn between them to boost their capital reserves.

It is likely the amount individual banks could access will reflect their current capital levels, expected loan writeoffs over the coming years and commitments they can give the State on lending to the broader economy.

The bank guarantee scheme means all covered banks are drawing up business plans, due for completion tomorrow.

The banks also had to grant access to PriceWaterhouse-Coopers to audit their books.

The Taoiseach says the Government will make further decisions when it has the banks' plans. If the banks don't plan to open up credit lines to businesses, Mr Cowen said the business plans will be rejected.

"I want to make it clear that the Government stands ready to make decisions that are in the interests of the economy and business and to consider all options, not just a specific option," he said.

Meanwhile, it emerged last night that the Government is paying Merrill Lynch a fee of €2m for its advice on the possible reorganisation of the banks.

Labour's Joan Burton obtained the figure from a question she posed to Mr Lenihan.

Closed

Fine Gael leader Enda Kenny demanded recapitalisation of the banks because 10,000 jobs are being lost every month.

"There is no point... in providing capital flows through the banking system after businesses have closed," he said.

Labour Party leader Eamon Gilmore said Mr Cowen and his Government were beginning to sound like "helpless bystanders".

"There is a credit famine in this country. Businesses are being starved of credit," he said.

Irish banking shares were under pressure again yesterday amid rising speculation on the Government's plan.

AIB's shares plunged 17.7pc to €2.18, while Anglo became the second bank in as many days to fall below the psychologically important €1 level. The stock closed down 25.1pc to 83c -- its lowest level in over a decade.

Bank of Ireland, meanwhile, managed to regain some ground, adding 12.2pc to 93c.

"The banks will continue to come under pressure until the Government takes action. It's death by a thousand cuts," said one market commentator.

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