Funding position 'more precarious than most'

IRISH LIFE & Permanent, which had avoided a Government bailout, was ordered to raise €4 billion by the Central Bank last March following stress tests. The group is selling Irish Life and buying back debt to raise further cash but will still require about €2.7 billion from the State.

In his affidavit, William Beausang, assistant secretary general in the Department of Finance, said IL&P’s funding position was more precarious than most other institutions as its loan to deposit ratio at end 2009 was 271 per cent, which improved to 249 per cent at the end 2010. This exceptionally high ratio was the key factor which led it to deleverage its loan book by €15.7 billion by 2013.

IL&P has become increasingly reliant on funding from the ECB and Central Bank, he said. As of December 31st last, total funding from the ECB and Central Bank was €13.8 billion and, at April 30th last, total funding from those institutions was €13.2 billion, representing 30 per cent of total funding of ILP. More than 60 per cent of IL&P’s Irish mortgage book, about €17 billion, were tracker mortgages priced off the ECB funding rate.

Mr Beausang referred to the banks’ stress test results published on March 31st last.

He said a total gross capital requirement of €4 billion for the banking business of IL&P was identified as necessary to continue its banking business.

The bailout terms agreed for the State required Irish Life to be offered for sale by IL&P before October 31st next.

As part of the capital-raising requirements, IL&P was to undertake a liability management exercise involving the buyback of its Tier 2 debt at a discount to the nominal amount.

That exercise was launched on June 2nd last and would, except for certain delayed settlement notes, settle prior to July 31st, the date by which IL&P was required to meet its capital requirement net of the capital generated from sale of Irish Life.

Mr Beausang said about €2.9 billion of the gross capital requirement had to be achieved by July 31st, after which the balance of €1.1 billion would follow from the Irish Life sale and the buyback. Of the gross capital requirement, about €0.2 billion would be met from internal IL&P resources, with about €2.7 billion to be invested by the State including €0.4 billion of contingent capital.

The Government would support IL&P to the extent required, he added. It remained unlikely that private capital was available to IL&P, he said.

Mr Beausang also said the embedded value of Irish life Assurance and Irish Life Investment Managers Ltd was €1.6 billion at end December last, and the latter had funds of €33.5 billion under management at that date.