Just two 'pillar' banks to be left after restructuring
Ireland will have just two main banks left after a €70bn calamity branded one of the costliest financial crises in history.
Central Bank chief Patrick Honohan today revealed another €24bn is needed to keep lenders afloat and avoid a catastrophic crash of the entire system.
The massive cash injection is designed to win back confidence from international money markets who have been nervous about funding Irish financial institutions.
With the lion’s share of the latest multi-billion euro bailout coming from taxpayers, most of Ireland’s banking system will effectively be brought under State control.
The new coalition Government said it will vastly shrink the banking system from six homegrown lenders to two main “pillar” banks.
Finance Minister Michael Noonan vowed there would be “no half measures” in the masterplan to finally draw a line under Ireland’s banking disaster.
In an attack on the State banking guarantee scheme, which tied the debts of six Irish lenders to the taxpayer two-and-a-half years ago, Mr Noonan said the date of its introduction would remain forever notorious.
“Tuesday the 30th September 2008 will go down in history as the blackest day in Ireland since the civil war broke out,” he said.
Mr Noonan added: “The banks were too big for the economy.”
The promised final bill for the banking clean up – €70bn – is half the value of the entire Irish economy.
But sceptics pointed out this is the fifth time Irish people have been told over the past couple of years it would be the last payout they would have to endure.
In a wave of tightly choreographed statements, Central Bank governor Mr Honohan disclosed the amounts needed to safely buffer four banks against further shocks after long-awaited stress tests on the institutions.
Allied Irish Bank (AIB) needs €13.3bn, Bank of Ireland needs €5.2bn building society EBS requires €1.5bn and Irish Life and Permanent needs another €4bn, he announced.
Mr Honohan said the recapitalisation was needed after “one of the costliest banking crises in history.”
Shares in Bank of Ireland and AIB were suspended for 24 hours ahead of the announcements.
On the back of the figures, Mr Noonan indicated Ireland’s six domestic lenders would be replaced by two “universal pillar banks”.
Foremost will be Bank of Ireland – seen as the strongest of the surviving lenders – and which will be ordered to slim down by selling off €30bn in assets within the next two years.
Allied Irish Bank, once the country’s largest bank, will merge with EBS to form the second main financial institution.
The plan will also see Irish Life & Permanent forced to sell off its lucrative pensions division Irish Life.
Anglo Irish Bank has already been nationalised and is being wound down along with Irish Nationwide – the bill for closing the doors on the two lenders is €35bn alone.
Mr Noonan signalled junior bond holders who invested in Irish banks should be hit for €5bn-€6bn in plans to finance the restructuring.
However, the minister accepted Brussels is unwilling to budge on senior bond holders – lenders at the top of the repayment queue when a bank fails.
“The banks should start to better serve the economy as functioning banks rather than the oversized, overleveraged banks they now are,” he said.
Mr Noonan said there is merit in forcing Anglo’s senior bondholders to share the burden on the huge losses.
AIB said the refinancing will make the bank profitable again and allow it to reward taxpayers for their investment.
