'No market' funding at time of INBS injection

THE EUROPEAN Commission said no private investor would put money into Irish Nationwide Building Society (INBS) when it gave the go-ahead in March for the State to inject €2.7 billion into the ailing institution.

As he gave approval for the recapitalisation in a letter to Minister for Foreign Affairs Micheál Martin, EU competition commissioner Joaquin Almunia also pointed to the risk of “consequent severe adverse impacts on other banks and the wider financial system in Ireland” if the transaction did not proceed.

INBS incurred a €2.5 billion loss last year. Society chairman Danny Kitchen has warned, however, that it may yet require more fresh capital if the losses incurred on loans it sends to the National Asset Management Agency (Nama) were higher than the 58 per cent discount on the first €670 million transferred.

The original value of all INBS loans to be transferred is €9 billion, leaving the society with a €2 billion loan book. The Government hopes to sell off what remains of the INBS or integrate it with another entity post-Nama.

Mr Almunia’s letter to Mr Martin on March 30th, published in part on the commissioner’s website, indicates the society continued to incur losses in the opening months of this year.

“INBS has furthermore been forced to take impairments on the loan book for the first quarter of 2010,” the letter said.

Although some key expressions and figures were deleted in the publicly available version of the letter, it implies that the institution lost deposits last year.

The redacted public version of the letter said: “INBS [. . .] of its combined deposit book between 1 January 2009 and 30 September 2009, reflecting the loss of confidence by customers.

“The proposed recapitalisation would not have been provided by a market economy investor expecting a reasonable return on his investment.

“For the proposed recapitalisation, the State is only investing because no market economy operator was willing to invest on similar terms.

Mr Almunia said the likelihood of a severe impact on the financial system was confirmed by the Central Bank.

Asked about Mr Almunia’s letter, a spokesman for Minister for Finance Brian Lenihan said: “The Commission has approved the injection of capital into the INBS and the reason it has given is that this is appropriate to ensure financial stability.”