Somers silent on scale of banking scheme

 

NATIONAL TREASURY Management Agency (NTMA) chief Michael Somers has declined to offer a view on whether the Government bank recapitalisation scheme will be sufficient to restore long-term stability to the institutions.

"What the Government have announced is a recapitalisation of €5.5 billion, which is €4 [billion] from the pension fund and €1.5 [billion] from the Exchequer. Now, some pundits say that there might be more needed, I don't know," he told reporters.

Asked if he was saying that it was not possible to say whether the €5.5 billion will be sufficient, he said: "What I'm saying is that I don't want my head chopped off."

Mr Somers said the NTMA was a "taker of instructions" in the recapitalisation scheme, stating that the decision-makers were the Government, the Department of Finance, the Central Bank and the Financial Regulator.

"The [pension reserve] fund at the moment is invested in about 2,600 companies all around the world. It's a well-diversified fund and, obviously, you would not want to put too much cash in any one company, so the idea that you would put €4 billion in a handful of Irish shares is not something that in the normal course would be done."

Subject to changes in legislation, the fund will provide €1.5 billion in cash and liquidate €2.5 billion in bonds for bank recapitalisation.

The fund would sell equity holdings if additional money was required for the scheme, he said. "Unfortunately, you're at the bottom of the market," he added.

The €16.8 billion fund lost 29.5 per cent of its value between January 1st and December 30th last year amid exceptional turbulence in world markets.

While Mr Somers said the major US and European indices lost between 39 per cent and 48 per cent in the year, the 0.6 per cent gain in the fund's annualised performance since its inception in 2001 means that 2008 market volatility eliminated all previous gains.

Mr Somers said the fund became "uneasy" about markets last year and held off making new cash investments, "so we're sitting on quite a substantial chunk of money at the moment, the order of €1.5 billion or so".

The NTMA said there was an inflow of €680 million into State-backed savings schemes such as savings bonds, savings certificates and prize bonds last September before the Government guaranteed liabilities of the Irish financial institutions. Since then a further €350 million has been received.

"We haven't aggressively gone out to take money away from the banking system," he added.