Government announces €10bn recapitalisation plan

 

The Government is to invest up to €10 bilion in the State's biggest banks and building societies as part of its recapitalisation plan to shore up the sector.

The plan, details of which were released by the Department of Finance tonight, would see the Government support a €10 billion recapitalisation programme alongside private investors and existing shareholders.

The State's investment is most likely to be funded by the National Pensions Reserve Fund and will take the form of preference shares and/or ordinary shares where appropriate.

The Government said its objective was to ensure the long-term sustainability of the banking sector in Ireland and to underpin its contribution through the availability of credit to individuals and businesses in the economy.

"This initiative will help to foster and encourage the flow of funds to the economy, and limit the impact of financial market difficulties on businesses and individuals," it said.

Minister for Finance Brian Lenihan said the recapitalisation plan will not result in exposure to the taxpayer.

Speaking tonight on RTE television, Mr Lenihan said the substantial money in the national pension fund would be used to support the banks "on terms that will ensure a full return to the tax payer and to the pension fund".

But Fine Gael spokesman on finance Richard Bruton said the announcement was vague and sketchy on detail.
He said it seemed designed to buy time for the Government rather than to get cash flowing through the banks. 

Tonight's announcement comes after a day of meetings in which Mr Lenihan outlined details of the plan to representatives of the various financial institutions.

Pressure had grown on the State's financial institutions in recent weeks to shore up their balance sheets in line with their European counterparts.

In its statement, the Government said it believed that in current market conditions even fundamentally sound banks may require additional capital "to respond to widespread market perception that higher capital ratios are appropriate for the sector internationally".

Under the plan, recapitalised institutions may be required to comply with new tighter transparency measures insisted on by Mr Lenihan. The rules governing the National Pensions Reserve Fund will also have to be amended.

"In order to safeguard fully the interests of the taxpayer, State investment will be assessed on a case-by-case basis in an objective and non-discriminatory manner, having regard to the systemic importance of the institution, the importance of maintaining the stability of the financial system in the State, and the most effective and economical use of resources available to the State and each credit institution’s particular requirement for capital," the Government said. 

"Any State investment will be undertaken in line with best practice in the EU and elsewhere and consistent with EU State aid rules and in particular the recent European Commission communication on recapitalisation." 

The Government said its plan was recognised by the European Commission as a measure that may be used by member states to preserve the stability and proper functioning of financial markets.

"Discussions with the relevant credit institutions are ongoing, and the institutions continue to progress proposals for private investment. Institutions are being asked to submit their proposals by early January," the Department of Finance said.