Shoddy practices will cost public dearly -- Lenihan
FINANCE Minister Brian Lenihan last night unveiled an unprecedented overhaul of the Irish banking system and blamed "shoddy banking practices" for the crisis.
The nationalised Anglo Irish Bank alone may require up to €18bn in new funds, with the first wave of €8.3bn announced last night under Mr Lenihan's radical new banking plan.
In a historic day for the Irish banking sector, the finance minister reprimanded bank bosses for their past practices and outlined a series of strict deadlines and demands as the State took further control of the banks.
He said the new "clear path" to fixing the banking sector will boost international confidence in Ireland's ability to recover and get banks lending again.
But he admitted the "appalling" lending decisions of the banks will cost the taxpayer dearly for years to come.
"In too many cases there were also shoddy banking practices. The banks played fast and loose with the economic interests of this country," Mr Lenihan told the Dail. The burden on taxpayers stemming from the losses incurred in our banking system is horrifying. Unless we face up to these losses now, we will not have a functioning banking system and the economy will not recover."
His announcement that €8.3bn will be required by Anglo this week, with another €10bn possibly needed to cover future losses, caused most surprise among government and opposition TDs alike.
An immediate wind-up of the bank would lead to a fire-sale of assets and a loss of upwards of €30bn. In addition, the State would have to provide a large sum of cash -- in the order of €70bn -- up-front to meet the deposits, bondholders and the liabilities due.
A longer term wind-down is also "not in the taxpayers' interest" because the State would be exposed to funding obligations approaching €30bn, Mr Lenihan said.
"I understand why many want us to close this bank. I understand the impulse to obliterate it from the system. But I cannot, as Minister for Finance, countenance such a course of action," he told a packed Dail.
"The unavoidable reality is that the bank has incurred losses from its large-scale property lending and needs substantial further capital. Unpalatable as it is, only the taxpayer can provide that capital. It is the least worst option."
Bank of Ireland now needs to raise equity capital of €2.7bn, while AIB needs to raise €7.4bn from private shareholders and will have to submit a plan by the end of April. At the moment, neither bank requires new exchequer funding, Mr Lenihan said.
However, the Irish Nationwide Building Society (INBS) will require €2.6bn, having obtained the largest of the 'haircuts' handed down to any bank.
The society, previously headed up by controversial boss Michael Fingleton, will transfer €670m of its assets to NAMA in the first phase, at an average discount of 58pc.
The institution does not have a future as an independent stand-alone entity, Mr Lenihan said. The Government's priority will be to secure a "swift sale" of the institution or integrate it with another.
The second building society, the EBS, will need €875m from the State. The State will therefore have control over the future strategic direction of the society.
In a bid to soften the blow to taxpayers, the minister insisted specific lending targets would be imposed on BoI and AIB in order to get them lending to customers and Small and Medium Enterprises (SMEs).
BoI and AIB will be required to submit SME lending plans for 2010 and 2011 in light of a €3bn lending target.
The two banks must also make available €20m each for seed capital to be provided to Enterprise Ireland-supported ventures. NAMA's aggressive valuations greatly increase its prospects of securing a "reasonable" financial return for the taxpayer, the minister insisted to jeers from the opposition.
And there is also the "proven gain" of €1bn which will accrue to the taxpayer in six months' time from the bank guarantee scheme, he said.
"The citizens of this country have shown grit and determination in facing up to our severe budgetary difficulties and it has paid off," Mr Lenihan concluded.