PRESS CONFERENCE:THE GOVERNMENT'S €7 billion recapitalisation of Allied Irish Banks and Bank of Ireland is enough to guarantee their future stability, Minister for Finance, Brian Lenihan has said.
Launching the package last night, the Minister rejected charges that both banks would face unsustainable property loan losses in coming years, and insisted that they can be managed.
“As far as the Government is concerned, this is the recapitalisation of the two main financial institutions which are of such systemic importance for Ireland,” said Mr Lenihan.
“We have avoided the danger of nationalising these institutions because it would have led to serious difficulty in international perceptions about Ireland.”
To fund the plan, the State will use €4 billion of savings currently held by the National Pension Reserve Fund, while the rest will be borrowed on international markets to invest in the banks.
He said “exhaustive inquiries” had been made by the State into the operations of the two main banks over the last few months and nothing suggested that criminal behaviour had taken place.
“Everyone knows that we are facing a battle for financial stability,” said Mr Lenihan. “This isn’t a question of baling out the banks. The State is getting a good deal.”
The bad debts discovered in the banks, he told a Government Buildings press conference, were in line with an estimate given already by PricewaterhouseCoopers.
However, “a short, sharp due diligence” would be undertaken in both banks before any of the State’s money was invested in either of them.
The Government, he acknowledged, had been “slow to capitalise” Irish banks, “but it has been worthwhile in that it has given us the advantage of being able to do due diligence”.
All directors of both AIB and Bank of Ireland will stand down before their annual general meetings take place, but he rejected calls to impose a State-ordered cull of executives.
“Were the Government to issue a directive like that, it would be seen as a signal that the banks do not have any proper corporate governance,” said Mr Lenihan.
The Bank of Ireland’s chief executive, Brian Goggin, has already said that he is to retire in the summer, and the bank is already preparing to replace him.
The bank’s chairman, Dermot Gleeson, has said that he would “consult” with the Government before an appointment is made, the Minister told journalists during a lengthy press conference.
He said top bankers’ pay would have to be cut by at least one-third, while bonuses and pay increases that might have been due this year and last would have to be scrapped.
The recapitalisation was structured to ensure the taxpayer would benefit from an increase in bank valuations, while the banks themselves would be encouraged to get private investment.
“We want to incentivise the banks to get private capital. The fact that they are unable to do so now doesn’t mean that they will be unable to do so in future,” the Minister said.
The possible property loan losses facing Allied Irish Banks and Bank of Ireland could not be gauged by National Irish Bank’s decision to write down hundreds of millions from its books last week, Mr Lenihan continued.
The majority of property loans were given on a 75 per cent loan-to-value ratio, and, therefore, the first losses would have been sustained by the property developer.
Mr Lenihan said that Davy Stockbrokers’ estimate that the two big banks would each cope with €5 billion worth of bad debts in each of the next three years, was “more realistic” than many others.