Irish Life & Permanent shares tumble as State ownership nears

IRISH LIFE & Permanent’s share price fell 45 per cent yesterday after reports that the severity of the Central Bank’s stress tests tomorrow would push the company into Government ownership.

This would give the State an interest in all six Irish financial institutions and mark the virtual nationalisation of the Irish banking system.

The company is expected to need between €2 billion and €3 billion in capital to cover higher mortgage losses at its bank, Permanent TSB, and the cost of selling excess assets to reduce its size over the next three years.

The governing council of the European Central Bank (ECB) has yet to decide whether it will proceed with a new medium-term liquidity facility for Ireland’s banks, an informed source said last night.

Amid intensive discussions about a years-long support programme tailor-made for the Irish lenders, uncertainty remains over the legality of providing such aid for banks which are not held to be financially sound.

There are fears in some quarters that such a scheme would leave the ECB open to legal attack under the EU treaties as an initiative for the direct monetary financing of government liabilities. In this context, legal advisers are reviewing Article 123 of the Treaty on the Functioning of the EU, which prohibits “overdraft facilities or any other type of credit facility with the ECB” in favour of central governments or the public undertakings of member states.

The ECB governing council has yet to see the Government’s proposed restructuring plan for the banks. It wants a specific commitment from the Government to execute such a plan in its entirety in the years ahead.

Majority Government control of Irish Life & Permanent is now considered inevitable given the amount of cash it must raise following the capital and funding stress tests. The share price collapse yesterday – down 34 cent to 41 cent – gives the company a market value of €110 million.

The Department of Finance moved to reassure IL&P depositors last night, saying that the stress tests would set capital requirements to make the banks sustainable and safeguard deposits.

IL&P is expected to name Alan Cook, the former managing director of Post Office, the financial services company owned by the Royal Mail in the UK, as the company’s new chairman after Gillian Bowler steps down tomorrow.

Meanwhile, Bank of Ireland chairman Pat Molloy and chief executive Richie Boucher met Michael Noonan yesterday for the first time since his appointment as Minister for Finance.

In a wide-ranging discussion, the bankers are understood to have told Mr Noonan that Bank of Ireland believes there are still opportunities to raise capital from private investors, even after tomorrow’s stress test results.

Ulster Bank is expected to name New Zealand banker James Brown as its chief executive, replacing Cormac McCarthy, who has held the post since 2004.