€3.8bn cash injection to nationalise Irish Life

IRISH LIFE & Permanent will be effectively nationalised with the injection of up to €3.8 billion in State funds by the end of next month to meet the Central Bank’s capital bill, the company has said.

The company told shareholders in a circular published yesterday it proposed issuing up to €3.4 billion in ordinary shares to the Minister for Finance and a further €400 million in contingent capital, leaving the State with a shareholding of more than 99 per cent.

As a result, the group will delist from the main Dublin and London stock exchanges on August 19th and re-list on the junior Irish market, the Enterprise Securities Market, on August 22nd.

An extraordinary general meeting will be held on July 20th to vote on the issue of ordinary shares to the Minister for Finance.

The State will inject the cash to meet the €4 billion capital bill set by the Central Bank following the stress tests of the banks last March before a deadline of the end of July under the terms of the bailout by the EU and the IMF.

“Given the ongoing systemic problems in the Irish banking system and the amount required compared to the current market capitalisation of the company, the directors do not believe that other sources of capital are currently available,” the company said.

Irish Life & Permanent said it would raise the remaining €200 million from internal resources. The board decided to take the capital from the State “having taken legal and financial advice”, believing it to be “in the best interests of the company and the shareholders as a whole, given the lack of alternative options available to raise the required capital by 31st July, 2011”.

The share price fell 7.7 per cent or half a cent to 6 cent, valuing the company at just €16.6 million.

Irish Life & Permanent warned if shareholders did not vote for the recapitalisation, its directors believed the Minister for Finance would be likely to use the Credit Institutions (Stabilisation) Act 2010 to ensure the company would meet its capital requirements.

The State may recoup some of its capital from a debt buyback by Irish Life & Permanent, and the sale of Irish Life, the company’s life assurance business. The company said it could make up to €700 million from buyback.

It is understood that the group will issue an information memorandum on a trade sale of Irish Life over the coming days.

Irish Life & Permanent will be the fifth Irish bank to fall under State control.

The €4 billion capital requirement comprises:

€1.1 billion to meet loan losses;

€2.2 billion to cover losses on the offloading of €15.7 billion in excess loans and other assets to bring loans closer in line with deposits;

€700 million as a capital buffer.

Shareholders, led by investment company Scotchstone Capita, had been seeking an extraordinary general meeting and a vote on resolutions to change the recapitalisation plan to boost reserves against higher loan losses and to put the Irish Life sale on hold.