Bailout of Irish Nationwide doubles to €5.4bn

CAPITAL REQUIREMENT:THE STATE bailout of Irish Nationwide has doubled in cost to €5.4 billion, with Minister for Finance Brian Lenihan confirming yesterday that the society has "no independent future".

Mr Lenihan said the National Treasury Management Agency (NTMA) had recommended that a further €2.7 billion be advanced to Irish Nationwide to cover losses on its loan book.

The State has already committed €2.7 billion to the society, with the new total of €5.4 billion to be advanced mainly by way of promissory notes.

The increased capital requirement at the society reflects the “haircuts” applied to its loans upon transfer to the National Asset Management Agency (Nama).

As recently as August, the Central Bank governor, Prof Patrick Honohan, indicated the cost of bailing out Irish Nationwide would rise to about €3.2 billion.

The Minister said he had asked the NTMA and other advisers to explore options for Irish Nationwide so that “finality” could be delivered.

The society has submitted a plan to the European Commission which would see it being sold or merged with another institution. Mr Lenihan has made no secret of his intention that Irish Nationwide would form part of a so-called “third force” in Irish banking. This could also include EBS and Irish Life Permanent, presuming the two can reach an accommodation. After Nama transfers, Irish Nationwide will be left with a residential mortgage book of about €2 billion and a deposit book of close to €5 billion, making it an attractive partner in such a venture.

Gerry McGinn, Irish Nationwide chief executive, said the new €5.4 billion figure reflected “the lending practices and flawed business model of the past”.

Mr McGinn said the society was focused on its day-to-day operations and minimising the cost to the taxpayer. “Depositors should be reassured that the Government guarantee remains in place and it is business as usual at INBS for our savings and mortgage customers,” he said.

Irish Nationwide has a small portion of subordinated bondholders holding debt of €165 million and Mr Lenihan said the State would expect these investors to make a “significant contribution” to the bailout costs.

So far, Irish Nationwide has transferred €1.2 billion in loans to Nama, with €670 million carrying a discount of 58 per cent and the remainder an average haircut of 72 per cent. A further €2.3 billion in loans is due to move to Nama after the middle of this month, with the total ringfenced for eventual transfer amounting to €8.5 billion, or more than 80 per cent of the loan book.

Until mid-2009, the society was led by Michael Fingleton, who was controversially paid a €1 million bonus the year before his departure. He promised to repay the money after it came to light but has yet to do so. Mr Lenihan said he could call upon Mr Fingleton to repay but that he was under no legal obligation to comply.

Irish Nationwide has been advised by two barristers that the former chairman is entitled to keep the cash. Mr Fingleton said he could not discuss the issue.