Shareholders of Irish Nationwide Building Society and its long-term mutual rival, the Educational Building Society (EBS) have both approved resolutions which will allow the Government to invest in the institutions.
Both societies this morning asked their 662,000 members to attend special general meetings in Dublin to seek approval for a capital injection to ensure their long-term survival. Irish Nationwide has 200,000 members, while EBS has 462,000.
The meetings mark a milestone in the Irish financial landscape as they will start a process that will lead to what had been seen as a marriage of the two – with substantial State aid – but which is really a takeover of Irish Nationwide by its larger rival.
The capital injections will bring the running total on the State’s investments into the banking sector up to €13.4 billion.
The transfer of loans totalling about €1 billion from EBS and €8.3 billion from INBS into the National Asset Management Agency (Nama) is the catalyst for the meetings.
Losses incurred by both building societies have triggered an urgent need for capital to fill the hole created from Nama’s discounted purchase of the assets.
Irish Nationwide’s rising impairments on its €8 billion development and commercial investment loans – even before the Nama transfers – make a capital injection an even more pressing issue for the lender.
“The additional capital required and the amount to be transferred to Nama may vary significantly depending on how events unfold,” Irish Nationwide said in a circular.
Members of the Educational Building Society (EBS) voted overwhelmingly in favour of the resolutions that will allow a capital injection of up to €400 million by the State to secure the financial future of the institution.
At a special general meeting of EBS members in Dublin's Burlington Hotel today, chief executive Fergus Murphy said the “first tranche” of its land and development loans will be transferred to Nama on February 12th, 2010.
A total of approximately €1 billion in loans is to be transferred by EBS to the agency. Fresh capital of €300 to €400 million will be required by the building society to replenish the building society’s reserves once the loans are transferred and losses are crystallised.
“Having looked exhaustively at the marketplace, we have come to the conclusion that the only credible source of capital is the Government,” Mr Murphy told members attending the meeting.
Two resolutions to allow the issuance of “special investment shares” to Minister for Finance Brian Lenihan in return for a capital injection were approved by an overwhelming majority, with more than 90 per cent of votes in favour of both motions.
This result came despite concerns expressed by a number of members at the meeting that approval of the resolutions would give Mr Lenihan a “carte blanche” to make changes to the EBS.
The precise terms of the recapitalisation have not yet been agreed, chairman Philip Williamson said, but it is possible that the Minister may be given certain powers such as the ability to veto some decisions such as board appointments.
However, Mr Williamson said he does not expect there would be a change of chief executive or a “significant change” to the board as a result.
Mr Murphy said discussions relating to a possible merger with Irish Nationwide Building Society (INBS) are at a “very, very early stage”.
“In early 2010, we will be looking into that through a deep process of due diligence,” he said.