EBS gets approval for capital injection

EBS WILL transfer its first tranche of loans to the National Asset Management Agency (Nama) on February 12th, 2010, shareholders were told yesterday.

The announcement came as the institution received approval from its members to issue a large shareholding in EBS to Minister for Finance Brian Lenihan in return for a capital injection of €300-€400 million.

Fresh capital is required by EBS as its reserves will be substantially depleted by the proposed transfer of about €1 billion in land, development and “associated” loans from the institution to Nama.

“Having looked exhaustively at the marketplace, we have come to the conclusion that the only credible source of capital is the Government,” Mr Murphy told members.

Two resolutions to allow the issue of “special investment shares” to the Government in return for a capital injection was approved by an overwhelming majority of members. More than 90 per cent of votes were in favour of each motion.

The result came despite concerns expressed by a number of members at the meeting that passing the resolutions would give Mr Lenihan “carte blanche” to make changes to EBS, and therefore would take power away from members. “You’re asking us to vote on something [even though] we haven’t a clue what’s going to happen,” one member said.

The precise terms of the recapitalisation have not yet been agreed but, according to EBS chairman Philip Williamson, the Minister is likely to be given certain rights such as the ability to veto decisions such as board appointments.

However, he said he did not expect there to be a change of chief executive or “significant change” to the board as a result.

Another member requested that the board come back with more information on the exact terms and conditions attached to the recapitalisation to “save us from buying the pig in the poke”.

“If we don’t receive capital, we may not be voting on anything in the future,” Mr Murphy warned.

Several members questioned why the EBS had not sought to raise some or all of the required capital from its members to avoid ceding a majority shareholding to the Government.

Mr Murphy said that, in future, EBS would consider issuing instruments to its members to repay the Government, but he did not believe it would be possible to raise sufficient funds through this route at the moment.

“We have come to the very, very firm conclusion that the only viable source of capital is the Government,” he added.

Another member warned of the “moral hazard” of State recapitalisation. “We should not be looking to the public for funds,” he said. “The Government is setting fire to the roof because of a frost.”

On a separate issue, Mr Murphy said discussions relating to a possible merger with Irish Nationwide Building Society (INBS) were at a “very, very early stage”.

“In early 2010, we will be looking into that through a deep process of due diligence,” he said. He told members that he was “very confident” that if the merger went ahead, the surviving culture would be that of EBS.

Not all feedback at yesterday’s meeting was negative. “Isn’t it great to be here at this meeting rather than at the Irish Nationwide one?” one cheerful member said.