State in control of building society after €100m transfer

THE STATE has in effect taken control of Irish Nationwide Building Society after the lender received €100 million from the Government in return for a special investment share yesterday.

The capital sum was invested by the Government to take over the lender after the European Commission temporarily approved a €2.7 billion bailout on Wednesday.

The remaining €2.6 billion in capital will be injected into the building society by way of a promissory note, in effect an IOU, over a period of 10 to 15 years.

Under the terms of the note, the building society can only draw a maximum of 10 per cent of the outstanding €2.6 billion in any year.

The Financial Regulator has allowed the building society to use the note to bolster its capital to meet the new threshold of 7 per cent core equity ratio – a gauge of a lender’s loss-absorbing reserves.

Minister for Finance Brian Lenihan said earlier this week that the capital sum represented “a very large bill for the taxpayer but, as in the case of Anglo, it is the least costly solution”. Irish Nationwide needs the capital to cover substantial losses incurred in its upcoming 2009 accounts and on loans moving to the National Asset Management Agency (Nama).

The agency applied the biggest “haircut” or discount to Irish Nationwide – 58 per cent – across the five institutions participating in Nama. The building society sold €670 million of loans in the first tranche, which represents 7 per cent of the total €9 billion in loans – about 80 per cent of its total loans – transferring to Nama.

Irish Nationwide must submit a restructuring plan to the European Commission under state aid rules by June 22nd, showing that it has a viable future and can survive without Government support, or else show plans to run itself down.

The first capital injection came as the building society’s secretary Stan Purcell, the long-standing Irish Nationwide board member who was second in command to former chief executive Michael Fingleton, resigned after 24 years working at the society.

Mr Purcell has been a director of Irish Nationwide since 1994 and was finance director until April 2009, when he was replaced by chief financial officer John McGloughlin, who this week replaced him on the board as secretary of the building society.

He is the last of the long-serving board members who served under Mr Fingleton at Irish Nationwide.

Mr Lenihan said earlier this week he would insist on board changes at Irish Nationwide in light of the change of ownership at the institution. He said the institution did not have a future as an independent entity.

Irish Nationwide will report a loss of about €2.5 billion for 2009 when it publishes its annual results in just over a fortnight, ahead of its annual meeting, provisionally scheduled for May 12th.

The Government has said its priority will be to secure a swift sale of Irish Nationwide or to merge it with another institution. Members will retain their status but are unlikely to be entitled to any proceeds should the lender be sold.