EU body questions viability of EBS plan


THE EUROPEAN Commission in Brussels has expressed doubt about the viability of the Educational Building Society (EBS) and challenged core elements of the Government’s restructuring plan for the nationalised lender.

As an in-depth inquiry by EU competition commissioner Joaquín Almunia proceeds into the State’s support for the institution, correspondence with the Government shows the commission has questioned whether the Government’s assumptions about the prospects for its business are reasonable.

The correspondence, published in the Official Journal of the European Union, reveals the EU’s executive branch has taken issue with the Government’s claim that mortgage lending will continue to be curtailed for several years as banks retrench and foreign institutions stay out of the market. The Government claims EBS is important for the supply of retail mortgages as competition dries up.

Gross mortgage lending reached €40 billion at the height of the property bubble in 2006 and fell to €8.1 billion last year. Dublin maintained in the institution’s plan that gross lending in 2014 would be equivalent to 2002 levels at €13.9 billion.

The correspondence shows the commission “doubts whether the lack of supply on the mortgage lending market will really last several years and whether it adequately justifies the limited restructuring undertaken by EBS”.

Minister for Finance Brian Lenihan has been trying to sell the EBS for months but the deadline for final bids was extended into the new year after the €85 billion EU-IMF bailout plan set out higher capital targets for all Irish lenders.

Irish Life Permanent and a private equity consortium backed by US buyout companies Carlyle and WL Ross and Dublin firm Cardinal Capital are in contention to buy the EBS.

The society must raise €463 million in new capital to satisfy conditions laid down in the bailout deal, a sum that is in addition to the €525 million it required under a previous target.

In a letter to the Government in the weeks before the bailout, the commission cast doubt over a key strand of the rescue plan which then rested on a pledge of €875 million from the State.

Inviting third-party submissions to Mr Almunia’s inquiry, the EU executive branch said it doubted whether that level of aid was the minimum necessary as capital ratios in the EBS remained “noticeably above” the minimum requirement set by the Financial Regulator.

“The commission has doubts on the viability of EBS, and also currently doubts whether the aid is limited to the minimum and whether the measures limiting the distortion of competition are sufficient,” it said.

In a reference to its official policy on bank rescues, the commission went on to express doubts at this stage that the restructuring plan fulfils all the conditions laid down in a communique on financial sector restructuring.