Sunday 19 November 2017

Nationwide's bailout could yet top €3bn, says Honohan

Central Bank governor 'not optimistic' that reforms can prevent future bank collapses

Laura Noonan

Laura Noonan

CENTRAL Bank governor Patrick Honohan hinted yesterday that the final cost of Irish Nationwide's bailout could rise to more than €3bn -- well above the €2.7bn already announced.

Prof Honohan raised the spectre of Nationwide's bailout less than a week after it emerged that the bill for Anglo Irish Bank's rescue had jumped to €24bn and could rise even further.

Addressing an audience in Beijing as part of his tour of Asia's financial centres, Prof Honohan acknowledged the "great focus on the budgetary cost of bank recapitalisation".

He said: "Anglo may impose a net cost to the Government of about €22bn-€25bn, to which can be added about €4bn -- mainly to cover one small building society."

The "small building society" referred to is understood to be Irish Nationwide. The €4bn figure also includes the €875m earmarked for EBS, implying up to €3.125bn for Nationwide.

A spokesman for Nationwide last night declined to be drawn on Prof Honohan's comments, but the building society's chairman recently admitted that the bailout cost could rise.

Building society

Speaking on the sidelines of Nationwide's AGM in May, chairman Danny Kitchen said the building society could need extra cash if future losses "exceeded a certain level".

Nationwide is transferring €8.5bn of its €10bn commercial loan book to the National Assets Management Agency (Nama), while the building society also has about €2bn of mortgage loans on its books.

"Irish Nationwide's capital requirements will be determined by the final Nama discounts," a spokesman for the Department of Finance said last night.

"The governor's comments were merely reiterating what has been known for over a month (that the capital requirement could rise, depending on Nama)."

Nama applied a 58pc haircut to Nationwide's first tranche of loans, while a 72pc discount was applied to the second batch.

The discounts for future batches could vary significantly, given the diverse range of loans involved.

Irish Nationwide's capital requirements could also be pushed up, depending on the outcome of the Financial Regulator's PCAR test, which is designed to test a bank's ability to withstand future shocks.

Opposition politicians last night slammed the latest Nationwide predictions, with Fine Gael's deputy finance spokesman Kieran O'Donnell describing the rising costs as a "damning indictment" of the Government's bank policies.

Labour's finance spokeswoman Joan Burton said: "At every stage of Ireland's banking crisis, the Government has insisted that it has the costs under control, only for this to be blown out of the water by the next multibillion-euro announcement."

Astonishing

Against the backdrop of Ireland's rising bailout costs, Prof Honohan said that while "there was much to be said" for policies that would limit the size and complexity of banks, he doubted whether future bank failures could be avoided definitively.

"I am not altogether optimistic that there will quickly be a full solution that both preserves the effectiveness and cost efficiencies of modern finance and genuinely removes the need for rescues in all situations," he stressed.

The Central Bank governor also described Anglo Irish Bank's loan losses as "astonishing" and pointed out that they amounted to more than 40pc of the bank's entire portfolio.

Irish Independent

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