Wednesday 22 November 2017

Worst nightmare: Appalling scale of bank crisis unveiled

Brendan Keenan, Charlie Weston and Fionnan Sheahan

THE scale of the country's crippling debt mountain can be laid bare today -- and it leaves taxpayers footing the bill for a multi-billion-euro bailout of the banks, developers and Ireland's second largest insurance company.

Finance Minister Brian Lenihan outlined the extent of the challenges ahead as the State took control of almost the entire banking sector.

Every man, woman and child in the State will have to pay an average of €2,000 every year just to service interest payments on borrowings to pay for the bank bailout, estimated to cost €40bn.

In what will be remembered as a Black Tuesday for taxpayers:



  • Mr Lenihan confirmed the bailout of the country's banks would cost at least €32bn.
  • The extent of the toxic loans was revealed as the National Asset Management Agency (NAMA) took over the banks' bad debts.
  • And the Financial Regulator effectively took control of Quinn Insurance after discovering a massive €454m hole in the insurance company's finances.


Consumers were last night warned that they faced having a levy imposed on all insurance premiums as a result of the High Court move to put Quinn Insurance into administration.

In his Dail address, Mr Lenihan launched a scathing attack on senior banking figures, accusing them of making "appalling" decisions that would cost the taxpayer dearly.

Shocking

"The detailed information that has emerged from the banks in the course of the NAMA process is truly shocking. At every hand's turn our worst fears have been confirmed," he said.

Mr Lenihan also revealed that the State may have to pump €18bn into the now-nationalised Anglo Irish Bank.

The Government will initially provide €8.5bn -- which will be paid over a number of years -- to Anglo. But it could have to inject a further €10bn over time.

This is more than twice the figure estimated by analysts.

Financial Regulator Matthew Elderfield was unable to give a firm figure for Anglo because of the scale of its losses.

The €18bn estimate was given by Mr Lenihan, who said there were still "significant uncertainties" over the losses at the disgraced bank.

AIB will have to raise €7.4bn by the end of the year to meet targets. It will have to start selling off assets in Poland, the US and Britain. Mr Lenihan said it was "probable" the country's largest bank would end up owned by the State.

However, AIB will be given time to try to devise the "preferable solution" of remaining in private hands. Bank of Ireland will need €2.7bn, but it is hoping to raise most of this from private sources.

The government is to demand a major increase in board seats at AIB and Bank of Ireland as part of the deal.

Senior government sources indicated last night that its board representation would have to increase in line with its stake in both banks.

While the government is keen to allow the institutions to be run on an "arm's length'' basis, the number of public service directors, who represent the government, will rise in the months ahead.

Meanwhile, the National Treasury Management Agency will today brief the world's major credit ratings agencies on its bank rescue plan as they attempt to head off any further damaging downgrades.

Despite the enormous bailout, Mr Lenihan claimed the country was now fiscally stable and credible.

NAMA is to pay on average 47pc less than the bank's original estimate of the value of the first loans it will acquire.

This means the agency will give the banks just over half of what the loans were worth.

It is significantly higher than the 30pc figure estimated by the Government last year.

Discount

The first batch of the loans -- consisting of 1,200 individual loans originally worth €16bn -- will be bought by the State for €8.5bn. NAMA will pay AIB €1.88bn for loans worth €3.3bn, a discount of 43pc.

It will pay Anglo €5bn for toxic loans that were originally valued at twice this amount. The discount for loans by Irish Nationwide is even higher at 58pc.

Savers' money is protected, but the building society will eventually cease to operate as a separate entity.

The discounts, or 'haircuts', for Bank of Ireland loans are 35pc, and 37pc for EBS.

In New York trade last night, Bank of Ireland managed to soar 20pc, though AIB closed down 8pc.

Irish Independent

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business