Resignations will not interrupt recapitalisation

 

MINISTER'S MOVE:AMID THE incredible sequence of events at Anglo Irish Bank over the last 48 hours, with the resignation of the bank's chairman Seán FitzPatrick and chief executive David Drumm, the significance of a statement from the Minister for Finance Brian Lenihan was almost lost in the fresh controversy.

In a statement on Thursday, Mr Lenihan acknowledged for the first time that the Government intended to inject cash into Anglo from the recapitalisation fund of up to €10 billion comprising State fund and private investor cash.

The Minister said the change of the bank's chairmanship "would not interrupt the substantial progress" made with Anglo on the State's recapitalisation plan.

The statement said Mr Lenihan "reiterated his commitment to underwrite the capital needs of Anglo Irish Bank on appropriate terms and to ensure its long-term strength and viability".

The term "reiterated" was strange as the Minister had not previously named a bank that would receive capital in the plan.

The Government said on Sunday it would make the €10 billion available to the banks on a "case-by-case basis", bearing in mind the "systemic importance" of each - in other words, whether it was vital to the economy.

On Thursday night, Mr Lenihan said it loud and clear for the first time that it considered Anglo to be such an institution. He said the Government would "continue to take all necessary measures to ensure that systematically relevant institutions, such as Anglo Irish Bank, remain sound and viable".

His comments soothed frazzled nerves at Anglo despite the upheaval caused by the resignations of Mr Drumm and Mr FitzPatrick over a 15-hour period.

Mr Drumm, in Anglo's statement announcing his resignation, described Mr Lenihan's comments as "a strong statement of support".

The various parties involved in the recapitalisation process - the banks and private investors - are primed to maintain contact today with senior Department of Finance officials as well as senior officials from the National Treasury Management Agency (NTMA) which manages the State pension fund.

The NTMA has been busy in recent days devising details of the plan. Senior Department of Finance officials will meet private investors today to advance the recapitalisation plan.

The focus of this weekend's negotiations will be the recapitalisation of Anglo in the first instance, although Government sources are holding out hope that agreement can also be reached on capital issues at AIB and Bank of Ireland.

The three banks will account for most of the €10 billion recapitalisation fund, with Irish Life Permanent, Irish Nationwide and EBS building society being regarded as the next tier to be fixed.

However, some banking sources questioned whether this would suffice for the coming years.

Nobody would comment publicly on the sequence of discussions planned over today and tomorrow, though privately various sources say the aim of this week's round of intense discussions is to establish an agreement in principle, outlining the investment each bank will seek, prioritising the interests of existing shareholders in the institutions.

"Everybody is ready to move. It is a question of how all the parts are going to move together," said a source close to the process.

The deteriorating situation at Anglo this week has "forced everyone's hand", said a Government source. A figure of at least €3 billion has been mooted as the sum required to tide the bank over.

The likelihood is that most of this money will come from the State as the appetite of private investors and existing shareholders to plough more money into the bank has waned, particularly following the events of the last two days. Anglo is still hoping that it can encourage private investors and existing shareholders to buy into the bank again once they know the terms and conditions on which the State will invest.

Government sources were hoping that a statement could be released over the weekend or before the stock markets open on Monday, or at the very least before Christmas, showing that agreement had been reached in principle between all the parties. Nothing will be agreed until everything is agreed, sources said. It will be a tough weekend, but most parties were upbeat that a deal could be brokered, at least in principle.