Nationwide and EBS next on agenda

ANALYSIS:The Minister for Finance is preparing to make sweeping interventions in the building societies, writes ARTHUR BEESLEY

HAVING CLEARED a key parliamentary hurdle this week on the long road to bring Nama to fruition, Minister for Finance Brian Lenihan is preparing to make sweeping interventions in the Irish Nationwide and EBS building societies.

While EBS fell behind Nationwide as the latter’s go-getting chief Michael Fingleton pursued vast profit growth in the world of property development, the property collapse has brought Nationwide to the point at which the operations left in its business post-Nama may well be reversed into EBS.

Such a development – and the prospect of a fusion with the banking arm of Irish Life Permanent (ILP) to create a “third” banking force – still appears to be in the realm of medium-term planning on the Government side.

But with the 10 largest borrowers set to have their €16 billion in loans shunted into Nama by Christmas, it is inevitable that Nationwide in particular will suffer serious capital depletion when it books actual losses on soured loans. With EBS needing some €300 million to compensate for the totality of its likely losses in Nama, Lenihan now plans to extend State support for banks into the building society sector.

Quite what the outwork will be remains to be seen, although the Minister’s amendments to the Nama Bill give him plenty of latitude. The “special share” in a building society that he receives in return for State capital empowers him to appoint directors and block or approve resolutions.

This would put him in a position of great power in any building society he supports. Still, his precise plan and the extent to which he is willing (if at all) to prop up Nationwide with any new capital remain unclear.

In other amendments to the Nama Bill, Lenihan moved to harden aspects of the scheme. He is also taking the opportunity to begin the process of reforming the system of financial regulation by bringing the operation of the Central Bank and the Financial Regulator under the control of a single board.

To strengthen Nama, he would give the courts power to take action against borrowers who fail to co-operate and act in good faith with institutions participating in Nama. This should improve the accuracy of the information which borrowers provide, and ease the transfer process.

The new measures also include a rule that will mean the Minister can only refer a valuation assessment back to Nama’s powerful valuation panel where he considers its valuation “too high”. This amendment is designed to confront claims that Lenihan would go soft on banks by referring valuations he considered “too low”.

These measures are designed to increase confidence in Nama. Still, Lenihan postponed until later the introduction of key concessions he has already made to the Greens.

The taxation of windfall gains on rezoned land and the introduction of a statutory banking levy if Nama incurs a loss will not now be discussed in the committee-stage debate, in effect the third phase of the passage of the Nama Bill.

We must now wait until the fourth phase, known as the report stage, to debate such measures and clarifications on the scope of rules against defaulting borrowers buying assets from Nama. Why this should be in the heated political atmosphere that prevails remains unexplained. This no doubt provides fodder for the Opposition. Whether Lenihan takes any of their amendments on board remains to be seen. As in the budget debate, he seems to be in no mood for compromise.