Saturday 24 March 2018

'Fat cats' play dirty in battle for banks

Intense 'poker game' played out as executives close ranks on the State


The future of the Irish banking system is at stake this weekend in what sources centrally involved in the negotiations say is a "big game of poker" being played out between the Government, the banks and private investors.

While the main players wait to see "who will blink first", a rapidly increasingly number of small and medium-sized businesses are staring closure in the face.

With credit all but dried up, the longer the stand-off continues the quicker the dole queues will grow.

Last week, Davy stockbrokers predicted that unemployment next year could reach 10 per cent, an unprecedented event which would have massive political implications.

The Government is therefore under huge pressure to find a solution as quickly as possible.

The Minister for Finance Brian Lenihan is trying to force the banks to accept a deal involving the injection of substantial private funds. Mr Lenihan has repeatedly said that State investment in the banks is "a last resort".

But the six main banks have effectively come together to resist the Government's pressure and are, instead, applying their own force to leave the Government with little alternative but to bail them out with taxpayers' money. By doing this, senior executives at Allied Irish Banks, Bank of Ireland, Anglo Irish Bank, the EBS, Irish Life and Permanent, and the Irish Nationwide expect to hold on to their comfortable positions.

"This is a fairly cynical, fairly dirty game. Everyone is looking out for themselves," an informed source said.

The main private investor, the Mallabraca consortium, has told the Government that it has in excess of €5bn to recapitalise some of the banks, possibly Bank of Ireland or Bank of Ireland merged with Irish Life and Permanent, in return for a 40 per cent stake

It is understood the Government is prepared to match private investment, euro-for-euro, which would be enough to get the banking system moving again.

But following their meeting with Mr Lenihan at Farmleigh on Thursday, during which they discussed the Government-commissioned Price WaterhouseCoopers report on the six banks covered by the State guarantee, it is understood the chief executives of the six banks effectively agreed to adopt a co-ordinated approach to minimise private investment.

The banks are understood to be prepared to accept private investment to around 20 per cent. They want the Government to come up with the remainder which would amount to about €8bn in non-voting shares.

Were the Government to hold such non-voting shares, the bank chief executives and board members are confident that they would ultimately retain control.

The Government has already signalled that it is intent on significant reform of the banking system. Government sources have told the Sunday Independent they were not averse to seeking "sacrificial lambs" in return for public money.

This would involve, in the first instance, what some sources pointedly refer to as "heads rolling", as well as the curtailing of the comfortable financial packages which all of the country's main banks have been awarding themselves in recent years.

But the banks are determined to hold onto these privileges and last week, in particular, were stoking up concerns about what Davy has called "gangs of sharp-suited investment bankers/private equity guys hanging around Dublin hotels", only intent on making a short-term quick killing.

The portrayal of the private investors as "the bad guys" at the poker table has gained some currency in the peripheral debate.

Fine Gael leader Enda Kenny, for example, has warned that US venture capitalists should not be allowed to get control of one or more of the Irish banks.

His comments echoed concerns expressed by Labour Party finance spokeswoman, Joan Burton and Jack O'Connor, president of the State's largest union, SIPTU.

"The nightmare scenario is that -- as with the Eircom fiasco -- this Government hands one or more of our major banks over to some US private venture capitalist, whose only interest will be in making a quick buck," Mr Kenny said.

This, he said, would involve cost-cutting and asset-stripping, the loss of thousands of bank jobs and no risk-taking in lending to businesses.

The Mallabraca consortium, which involves US private equity firms JC Flowers and the Carlyle Group, and also includes state-controlled cash investment funds from the Middle East, is said to be concerned that it is being portrayed in such terms.

It is understood Mallabraca has told the Department of Finance that it is "not hostile" and that its involvement in the Irish banking system would be "long-term".

In the absence of any firm news on what is happening with the banks, the rumour mill in Dublin has gone into overdrive.

Finance Minister Brian Lenihan made some comments at a press briefing last week about his meetings with the six banks covered by the government guarantee but did not give much away.

He said that the Government was determined to reform the banking sector and to ensure there was credit for those with small- and medium-sized businesses.

However, he would not comment on whether consolidation was on the agenda apart from suggesting that he had a "structural consultation". However, it seems consolidation involving various different proposed mergers of the banks in almost inevitable.

Meanwhile, in the continuing uncertainly, the stock market this week is likely to see Irish bank stocks continue to be blown around over the course of trading.

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