EU backing needed to 'telescope' bailout

RECAPITALISATION:EU APPROVAL was required to "telescope" the EU-IMF bailout of the banks and the Central Bank's next set of stress tests into one announcement at the end of March, according to Minister for Finance Brian Lenihan.

Mr Lenihan postponed further injections of up to €10 billion into Bank of Ireland, Allied Irish Banks and the EBS building society until after the general election so they can be agreed by the new government.

The delay means the Government will miss a deadline set for the end of the month under the EU-IMF loans programme – the first deadline for the initial bank recapitalisations under the plan.

Some €10 billion of the €35 billion bank bailout fund – part of the overall €85 billion EU-IMF aid package – was due to be used to inject the capital into the lenders.

The remaining €25 billion of the banking fund will be used to cover potential further losses and so-called “credit enhancements” to be applied to bank loans and businesses to facilitate their sale.

The Minister gave no timeframe for when new capital would now be injected, and said this was a matter for the new government.

The decision was taken to allow for “a short delay” in the EU-IMF plan, Mr Lenihan said, as the outgoing Government had minority support and no significant mandate to sanction the next bailouts.

The Minister said he would brief the incoming government as soon as it became clear following the election which parties would form the next government. This would ensure a quick decision could be made, he said.

“Even without further capital injections these banks are adequately capitalised, and the short delay poses no regulatory or stability issues,” said Mr Lenihan.

The Government agreed under the EU-IMF deal to pump further cash into the three lenders to raise their levels of core tier one capital – a form of loss-absorbing cash reserves – to higher international standards of at least 12 per cent.

The Central Bank said deadlines under the EU-IMF agreement were “ultimately the responsibility of the Department of Finance”, and it expected the timeline would be “set early in the life of the new government”.

AIB, Bank of Ireland, Irish Life and Permanent and EBS will be subject to stress tests on solvency and, for the first time, liquidity by the end of March, the bank said.

Concerns had been expressed in the market about Bank of Ireland’s ability to raise a required €1.4 billion by the original deadline – and avoid government control – by the end of this month, when it was due to undergo a stress test in March.

Mr Lenihan rejected the claim by Anglo Irish Bank chairman Alan Dukes that the Irish banks required a further €50 billion – on top of €50 billion already injected – to create a clean banking sector.

Mr Dukes had said that the banks system required €15 billion more than the €35 billion which had been allocated for the banks under the EU-IMF programme.

“It is an attempt to pluck a figure out of the sky,” said the Minister. “I don’t think it is a properly validated figure,” he added.

Mr Lenihan said that Mr Dukes’ figure was based on losses incurred by Anglo and this could not be applied across all banks.

Mr Dukes said that the State’s asset recovery vehicles - including Nama - would require €75 billion in long-term funding.

Nama rejected this as it pertained to the agency.

Nama said it would be acquiring a further €12 billion in loans of under €20 million as part of the so-called next “Nama 2” wave of loan transfers.

Including a further €5 billion in loans which were being withheld, Nama expected to acquire a total of €88 billion in loans for a consideration of about €37 billion.

Mr Lenihan said that the combined Anglo-Irish Nationwide entity would be funded by Irish and European central bank funding and by the promissory notes granted by the Government.