Saturday 16 February 2019

€16bn bailout in pipeline if stock crash continues

• Ireland's €400bn bank guarantee scheme was watered down by Brussels bureaucrats • One of our 'big six' banks could end up being nationalised on Budget day • Lenihan may yet divert all the funds in the Irish pension reserve into the banks

DANIEL McCONNELL

THE Government is ready to give liquidity to the Irish banking sector in the coming days, with €12bn to €16bn of taxpayers' money, if further turmoil occurs on the stock markets, the Sunday Independent has learned.

The news comes as Taoiseach Brian Cowen and the other Eurozone leaders have been summoned by French president Nicolas Sarkozy for a crisis meeting later today aimed at tackling the mounting financial crisis.

Brian Lenihan's Department of Finance has drawn up contingency plans beyond the €400bn bailout guarantee with the Central Bank and the Financial Regulator, including nationalising the banks and buying up equity in the troubled sector.

Senior sources said yesterday that, given the turmoil on the stock exchanges on Friday, nationalisation of at least one of the six banks could happen within days, and if tomorrow proves to be another bloodbath, Ireland could be forced to nationalise one of its banks on Budget day.

At the close of business on Friday, the ISEQ ended at a fresh 11-year low of 2,871 -- a drop of 5.5 per cent on where it began that morning. The Irish market lost around a quarter of its value -- almost €13bn -- last week.

The Irish banks were heavily hit and share prices last week were back to the levels they had been at when the guarantee was introduced.

It is thought that rather than borrow the money and add to the country's mounting debt, the Government could suspend the National Pension Reserve Fund and use those funds, believed to be worth between €16bn and €17bn, to buy equity in the banks, if it is deemed necessary.

The cost of shoring up the banking system has been the basis of much speculation but informed sources told the Sunday Independent that if it were to happen, the figure would be at least twice the previously considered €6bn, and could be as high as €16bn. If such a move is to happen, further legislation will be required.

ANALYSIS PAGES 15, 19, 22, 32

Officially yesterday, the department was refusing to comment on any plans, saying simply that all things remain a possibility, given the pace of change in recent weeks.

While the speculation about the Government's next move continues, the Dail has yet to see the detail of the €400bn guarantee and the plans are now not expected to be published until Thursday at the latest.

It has also emerged that consultant firms Merrill Lynch and Price Waterhouse Coopers were involved in the process of the Government's examinations of the loan books in the lead up to the announcement of the guarantee. Their examinations, coupled with the figures obtained by under-fire Financial Regulator Pat Neary, were all taken into account during the plan's formulation.

The past week has been a rollercoaster ride for the Government. While Brian Lenihan and the Taoiseach were commended for taking their bold move last week, the praise quickly turned to criticism as they floundered to deliver the substantive plan.

In the wake of Ireland's solo run which infuriated the UK and Europe, Brian Lenihan met EU Competition Commissioner Neelie Kroes last Monday in Brussels. Despite Irish spin to the contrary, it is clear that the EU has succeeded in reining in Ireland's drastic measures and making them conform to the EU line.

In the wake of that meeting, a spokesman for the EU Commission said: "We had concerns about the wide scope of the measures covered. We are expecting notification of the final version of the scheme very shortly. We will then analyse it as quickly as possible and issue our decision. The sooner we get the final version of the scheme, the sooner we can give our final decision."

The Government's delay in delivering the plan was heavily criticised last week by Opposition TDs and it now appears that it will be Thursday at the earliest before it is made public.

Labour leader Eamon Gilmore repeatedly called on Lenihan to give the Irish people some assurance about what is really happening with their money.

One of the questions Gilmore wanted answered was how much the banks will be charged for being saved. It was confirmed that the cost to the banks will be in and around €700m.

Despite the previous statements that the plan would be published as early as possible, it has emerged the Government deliberately held off giving its draft version of the plan to Brussels until after Gordon Brown's government announced its £500bn plan to shore up the British banking sector.

Senior government sources confirmed yesterday that Brussels only received the plan on Wednesday night and began "severely culling" it.

After the Dail session finished late on Wednesday and once the plan had been faxed to Brussels by senior finance department officials, Brian Lenihan was spotted in the Dail bar running through aspects of the EU demands with Fine Gael's Richard Bruton and Labour's Finance spokeswoman Joan Burton.

It is clear now that Brussels forced Lenihan to extend the scheme to the non-Irish banks based here, essentially meaning the guarantee was now €445bn.

Officials in Dublin and in Brussels were still negotiating the deal last night and work is expected to continue today and into tomorrow.

Tomorrow is likely to see another bloodbath on Wall Street and other international markets as insurance companies in the US try to raise the billions lost in the Lehman Brothers share auction.

All of this takes place as Brian Lenihan gets ready to announce his "savage" emergency Budget on Tuesday.

He is expected to return to Brussels on Wednesday to finalise matters on the guarantee to the banks.

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