NTMA had talks with Libyan fund over €1.4bn investment in B of I

The National Treasury Management Agency held talks in 2010 with the Libyan sovereign wealth fund about a possible €1.4 billion investment in Bank of Ireland, the Oireachtas banking inquiry has heard.

Former NTMA chief executive John Corrigan said contact took place in November 2010 with the Libyan investment authority, which expressed an interest in taking a 24 per cent stake in Bank of Ireland for €400 million as well as taking €1 billion worth of preference shares. This took place before Libyan dictator Col Muammar Gadafy was overthrown and killed in the “Arab Spring” revolution.

He said the approach was initially made to Bank of Ireland, which then approached the NTMA. He said the Libyan authority was a “very highly regarded sovereign investment fund” at the time.

The NTMA checked with the department of foreign affairs as to the “appropriateness” from a political point of view of engaging with the Libyan fund.

“They were comfortable for us to do so,” he said.

Mr Corrigan said a number of officials from the NTMA travelled to Tripoli in December 2010 to meet the Libyan fund.

“We spent a day with them but the whole discussion concentrated around a possible third round of recapitalisation [of Bank of Ireland] and . . . in the event, it didn’t proceed. They pulled out of it.”

Mr Corrigan also told the committee that on December 13th, 2008, he attended a day- long meeting in the department of finance where the question of bank recapitalisations was considered.

Recommended approach

“We pressed strongly at that meeting for the nationalisation of Anglo Irish Bank, arguing that the potential represented by the State’s purchase of preference shares in Anglo Irish Bank [the preferred option of the department of finance] for letting its subordinated debt holders off the hook was in itself a compelling argument for nationalisation, which was also the approach recommended by [government advisers] Merrill Lynch,” he said.

The then government initially decided to recapitalise Anglo with a €1.5 billion injection of capital but this was overtaken in mid-January 2009 with the nationalisation of the bank.

Mr Corrigan said the NTMA held the view at the time that Anglo’s business model was broken.

Fianna Fáil’s Michael McGrath asked Mr Corrigan how much might have been saved if the State had nationalised Anglo in late 2008 rather than January of the following year.

“I don’t know whether money would have been saved but we would have got our hands around the throat of the problem sooner,” he said, adding that “operating in the dark is never a comfortable position” to be in when dealing with such matters.

On the possibility of burning senior and junior bondholders in late 2010, Mr Corrigan said it was “very much an opening gambit” in discussions with the EU and IMF on a bailout. He said the troika would not accept burden-sharing at that point and “the thing went no further”.

The NTMA had engaged Lazards to advise on this matter.

Mr Corrigan also recommended to the government in November 2010 that Ireland enter a bailout programme with the EU and IMF.

Bailout

He wrote to then minister for finance Brian Lenihan on November 21st, 2010, to press for Ireland to enter a bailout with the troika to provide assistance to the domestic banking system and funding for the State.

“I envisaged that such assistance would provide for a capital strengthening of the banking system and, although likely to be expensive, would also provide sizeable funding to the State,” he said.

The former NTMA chief said he was “taken aback” by the blanket bank guarantee decision of September 29th, 2008. He was in the United States on business when the decision was taken and had no sense of the “impending doom” around the financial system before this trip.

Mr Corrigan, who was NTMA chief executive from December 2009 until January 2015, said one could take the view that it was the “least bad decision . . . I don’t know”.