State not guaranteed to be repaid €1 billion

Sat, Feb 9, 2013, 00:00

The State is not guaranteed to be repaid the €1 billion that it is due to hand out in compensation to IBRC depositors when the bank is wound up.

Most of the money used to compensate the bank’s mainly corporate deposit holders will come from the taxpayer-funded Eligible Liabilities Guarantee (ELG) scheme that is administered by the National Treasury Management Agency.

A small proportion is likely to come from the Deposit Guarantee Scheme (DGS), which is funded by a levy on banks operating in the Republic.

While Minister for Finance Michael Noonan will be able to make a claim to the special liquidators, Kieran Wallace and Eamonn Richardson of KPMG, for the money paid under the schemes, there is no guarantee that it will be fully repaid.

The Minister’s claim will be treated alongside those submitted by the bank’s unsecured creditors.

According to a Department of Finance document published this week, it is unclear whether the IBRC will have enough cash to repay this group of creditors, either in whole or in part.

Most unsecured creditors are likely to be made up of other businesses that have been supplying goods and services to the bank.

IBRC has few depositors, most of them are accounts belonging to businesses that also owed the bank money.

They include jewellers Fields, hotel group Jurys Inn, estate agent Sherry FitzGerald, airline Cityjet and Hickey’s Pharmacies.

Private hospital Galway Clinic, which is 40 per cent owned by beef baron Larry Goodman and his family, used IBRC.

Service station group Topaz, whose shareholders include businessman Denis O’Brien, also banked with IBRC, as did its rival, Applegreen.

In cases where the deposits are used as security for loans, the liquidators will be able to set off amounts due against the debt from the compensation due to the depositor.

The bulk of IBRC’s deposits were moved to AIB and Permanent TSB in 2011, leaving a relatively small pool with the former Anglo Irish Bank.

Earlier this week, the department estimated that the total bill for compensation would run between €900 million and €1.1 billion. Yesterday, it said that the most likely figure was the mid-point between the two estimates, €1 billion.

The ELG is specifically designed to compensate larger businesses and clients who have over €100,000 on deposit.

The DGS protects personal account holders and small businesses up to a maximum of €100,000 per individual.