Government to inject €100 million in capital into EBS

THE EBS is scheduled to receive a capital injection from the Government at the end of this week, giving Minister for Finance Brian Lenihan control of a second building society and a third domestic financial institution.

The Government is planning to inject €100 million in capital into EBS for special investment shares, giving the Minister majority control of the building society.

However the Government will give the lender time to see if it can source private cash to meet new capital rules.

The EBS requires €875 million to bring capital reserves to the Financial Regulator’s new levels to cover anticipated bad loans and losses from transferring €1 billion in loans to the National Asset Management Agency (Nama).

The building society has held talks with an investment consortium led by Cardinal Asset Management and including US private equity firm JC Flowers, which has a track record of investing in distressed financial institutions.

If the EBS cannot raise sufficient private capital, the Government will issue it with a promissory note, which is in effect an IOU to pay the society cash over time.

The likelihood of a private equity investment into the EBS will not be known until the end of June, according to sources with knowledge of the discussions.

The regulator waived capital rules for the EBS last March, allowing the society to maintain reserves below the minimum capital threshold under a derogation lasting until Monday.

The derogation was granted following losses incurred from the first transfer of €140 million in loans to Nama at an initial discount of 37 per cent.

A spokesman for the Department of Finance said the Government would take whatever actions were required to allow the EBS to meet the capital requirements following the end of the derogation.

The building society is planning to transfer a further €40 million in loans in the second transfers starting in mid-June linked to 20 major borrowers below the 10 most indebted developers.

The Government has taken control of Anglo Irish Bank and Irish Nationwide, which require about €25 billion in additional capital.

Cardinal, which is controlled by businessmen Nick Corcoran and Nigel McDermott, and JC Flowers were part of the Mallabraca consortium which had expressed an interest in investing in Bank of Ireland in the autumn of 2008.

The Government’s shares will allow it to appoint directors to the EBS and give Mr Lenihan approval on the appointment to the vacant post of chairman.

The two Government-appointed directors at EBS, Tony Spollen and Anne Riordan, are standing for election to the building society’s board at the annual meeting in Dublin on Friday.

Mark Connolly, an EBS member who lost in last year’s election, is challenging the two directors in the election.

The Minister could circumvent an election and appoint them directly if the Government takes the special investment shares before the meeting on Friday.

The EBS is expected to submit its viability plan to the European Commission under state aid rules over the coming weeks ahead of the initial expected delivery at the end of June.