Saturday 24 February 2018

Government bank policy in ruins, say opposition

Critics attack share deal with BoI

DANIEL McCONNELL Chief Reporter

THE Government has been accused of a "shocking deception" following its forced acquisition of 16 per cent of Bank of Ireland on Friday night.

Opposition parties said yesterday that, as a result, Finance Minister Brian Lenihan's plans to save the banking system now "lie in ruins".

From tomorrow, the taxpayer will own 15.7 per cent of Bank of Ireland through the National Pension Reserve Fund. This will automatically dilute the positions of other shareholders in the bank.

The transfer, requiring the bank to issue new ordinary shares, is the result of a European Commission ban preventing it from paying the eight per cent dividend due under the state bank guarantee.

Bank of Ireland had been due to pay €250m to the State by this weekend under the terms of the Government's €7bn bank recapitalisation scheme.

Under this scheme, which has seen the Government invest €3.5bn in both AIB and Bank of Ireland, the State is entitled to receive annual "coupon" payments of up to €280m from each bank.

The European Commission has, however, placed a "coupon-stopper" on the banks while it considers their restructuring plans. Under Bank of Ireland's internal regulations, this automatically triggers payment in shares.

It is thought that all of the parties involved would have chosen a cash payment over a share transfer, but the transfer was welcomed by Mr Lenihan.

Labour Party finance spokeswoman Joan Burton said yesterday the Government's policy to save the bank now lies in ruins.

"It is now over a year since the Government put €7bn of taxpayers' money into Bank of Ireland and AIB in the form of preference shares. This investment was to carry a yield of eight per cent, or €560m, per annum. This, according to ministers, was a sound investment and an eight per cent annual dividend made sound business sense.

"Now that initiative lies in ruins. Once again in the banking crisis an important outcome has turned out totally different from what was promised by Brian Cowen," Ms Burton said.

Fine Gael's deputy leader and finance spokesman, Richard Bruton said: "The Government's banking policy is falling apart at the seams. They are literally left to make up policy as they go along.

"We were promised that the dividends to be paid by the banks for the Government's support would provide a solid return on our investment in the banks.

"That is now not going to happen. The taxpayer is left short and the shareholders in Bank of Ireland are left short as their shareholding is diluted."

Mr Lenihan said the share deal ensures taxpayers are remunerated in a timely fashion for "investing" in the bank.

He assured taxpayers they would be "appropriately remunerated" for any investment in the bank. The State already controls 25 per cent of Bank of Ireland through special "preference" shares which can be converted into ordinary shares within four years if the State has not been reimbursed for its €3.5bn investment by then.

It is unclear exactly how the State's new shareholding will affect BoI's requirements for further cash injections to bolster its reserves.

The bank is said to need to raise €2.2bn by early next year, with most in the market expecting a fundraising initiative over coming months. It is possible the State's shareholding will increase as a result of this, with a majority stake remaining possible. Bank of Ireland said last night it was "actively exploring a range of options" on its funding position.

The bank stated its intention to pursue the matter as soon as the EU had signed off on its restructuring plan and the impact of the National Asset Management Agency (Nama) had been clarified. It is expected that the European Commission will respond to the banks on their restructuring proposals within the next few weeks. Nama, meanwhile, is on the point of taking on the first batch of bad loans from participating banks.

The news coincides with a case in the Commercial Court which heard that land in Athlone valued at over €31m in 2006 now has a value of just €600,000.

Sunday Independent

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