THE STATE faces a bill for €1.3 billion after the sale of Irish Life collapsed last night, with the increasingly uncertain situation within the euro zone cited as a key contributing factor.
Canada Life, part of Great West Lifeco, the second largest insurance company in Canada, had been the leading contender to take over Irish Life, which is being sold to reduce the State’s cost of bailing out the banks.
It had been expected to pay in excess of €1 billion for the business, which has over €32 billion in funds under management. However, in a statement last night, the Department of Finance said it had “confirmed to Irish Life & Permanent (ILP) that none of the bids received for Irish Life were acceptable at the present time”.
Despite what it said was “significant interest from a broad range of potential acquirers . . . the very challenging market environment in recent days was not supportive to achieving an outcome that recognises the strength of the Irish Life business.”
The State had been relying on the sale of the life insurance arm of ILP to avoid having to use more public funds to shore the group up. Irish banks had until July of this year to increase their capital by €24 billion, most of it from State funds under an EU-IMF bailout, but Irish Life was given extra time to meet the requirement so a deal for its life business could be agreed.
The Department of Finance said last night that it would work with ILP to complete the recapitalisation “in accordance with the requirements of the Central Bank”.
A spokesman for the Department said the breakdown in the sale process would not impact on the budget arithmetic of Minister for Finance Michael Noonan, as the outstanding €1.3 billion required to complete the €4 billion recapitalisation of the group was already allowed for.
The Government owns more than 99.5 per cent of Irish Life & Permanent after injecting €2.7 billion into the bancassurer in July.
In a statement issued late last night, ILP said that “in the context of continuing market uncertainty”, its board had decided to “suspend . . . the disposal process”.
It was unclear last night what would now happen at Irish Life & Permanent although the company said the separation of Irish Life from the group’s Permanent TSB banking business would continue despite the setback. The process is due to be completed by the end of the first quarter of 2012.
The dramatic increase in volatility in European bond markets over the past week are understood to have been a major factor in the decision of Great West Life to walk away from the deal.
The unexpected failure of a German bond auction on Thursday followed yesterday by Italy being forced to pay unsustainable amounts to sell six-month money has alarmed many, particularly outside the euro zone.
Concerns had been raised earlier in the sale process about the potential fallout from the €7 billion in deposits circulating from ILP into Anglo Irish Bank in 2008 in an effort to flatter the latter bank’s end-year financial figures.
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