THE EBS Building Society says it believes there is strong support for a mutual lender to be part of a “super mutual” or “third force” in Irish banking to compete with the largest banks, Allied Irish Banks and Bank of Ireland.
The building society said it should be part of the enlarged bank, which would be the “ultimate good bank” and would focus on savings and home loans.
Announcing a pretax loss of €8.8 million for the first half of the year, chief executive Fergus Murphy said EBS planned to sell to the State’s “bad bank” Nama €524 million in development loans and more than €400 million in associated loans linked developers.
The interim loss compared with a pretax profit of €27 million at EBS for the same period last year.
Mr Murphy said the lender’s standard variable rate on its mortgages would have to rise as the net interest margins of Irish lenders were half that of UK and European banks, but it would not increase rates before the end of the year.
The Government may pay 25-30 per cent less than the face value of development and related loans heading to Nama across the sector, he said.
EBS would need at least €300 million in capital from the Government after the loan transfers, he added, but a merger into the third force would not be a condition of the lender participating in Nama.
Some €300 million would be sufficient based on “haircuts” ranging from 10 per cent to 40 per cent on the loans and EBS would be “comfortable” repaying the capital in five years, Mr Murphy said.
A merger of EBS, Irish Nationwide and the Permanent TSB banking division of Irish Life Permanent has been mooted as one possible enlarged group following the loan transfers to Nama.
A business lender could also form part of the merger, said Mr Murphy, but he said no formal discussions had taken place on the formation of the third force.
Emer Finnan, director of strategy at EBS, said legislation would be required if it was to issue ordinary shares to the Government in return for a State capital injection. This could be made with “a potential coupon” similar to the preference shares the Government holds in its 25 per cent stakes in AIB and Bank of Ireland, she said. The Government could take a majority stake in the third force entity, said Mr Murphy.
He said it was still “possible and probable” that EBS could break even for the full year after posting the half-year loss. EBS set aside €43.9 million for bad loans, up from €5 million on the first half last year.
EBS has so far made provisions to cover losses on 16 per cent of its development loan book and had planned to write off up to 40 per cent over three years.
However, the full scale of the write-off will not be known until Nama reveals the price to be paid.
Ms Finnan said €200 million- €250 million in loans on homes and residential investment properties linked to the top 10 developers would move to Nama this year.
Most of these loans were performing, so it was not clear what discount Nama would pay for them. EBS expects all of its Nama-bound loans to be transferred by June 2010.
Development loans of less than €5 million at EBS will also be sold to Nama, unlike development loans at other lenders.
Ms Finnan said Nama officials had told EBS that each institution would help the agency to manage the loans, but there was a possibility that all loans would be managed by a single entity after a year.
EBS has a shortlist of four candidates for the vacant post of chairman, said Mr Murphy and hoped to fill it by the end of October.
He said that “clearly terrible mistakes were made” in relation to lending at Irish banks.
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