Yesterday’s decision announced by Minister for Finance, Brian Lenihan that the next injections of capital into the banks would be deferred to after the general election on 25th February has been attacked as a political stroke by opposition politicians. The decision will effectively push the next injections well into March 2011 because the next Dail is only due to meet on 9th March, 2011 (and that is set in stone by order of the Taoiseach when dissolving the Dail). And given the likely outcome of the election (a FG/Labour coalition) there may be some horsetrading to be still resolved by 9th March. You would expect €7bn, potentially, of state spending to be given a high priority but it could well be later in March when the injections take place.
Was it a political stroke? I think yes, but I don’t think it was primarily aimed at undermining the Opposition. It has been known since early January that the Department of Finance and the NTMA have been seeking an extension to the February 2011 deadline but that they have been rebuffed by the Central Bank of Ireland and the ECB/IMF. The request for the extension is believed to really be about extending to Bank of Ireland every opportunity for private capital raising which might avoid majority state control. And behind that position is the principle that Bank of Ireland, at least, should survive outside state control and be a leading participant in any future banking landscape in Ireland. That position does not coincide with the CBI’s which is more relaxed about BoI being foreign owned and controlled. And that position was reflected in the detached language used in the CBI statement yesterday. But it seems the Minister got his way or at least secured more breathing space for Bank of Ireland. And by throwing his hands in the air with this “mandate” business he was able to save some face.
The obvious question prompted by the Minister’s Damascene conversion to democratic consensus is if the government doesn’t have a mandate to inject €7bn into the banks then what mandate does it have to (1) auction off c€14bn of deposits at Anglo/INBS (2) sell off EBS (3) decide to exclude €4.6bn of associated lending to be transferred to NAMA with sub-€20m land and development loans (4) increase CBI ELA by billions to replace fleeing deposits (5) repay hundreds of millions to bondholders – surely these current decisions should have been (or in some cases should be) deferred for consideration by the incoming administration?
We are expecting a statement later today from Bank of Ireland regarding the debt-swap of the so-called Canadian bonds (€300m at par value where BoI has offered a debt-swap which would see a 56% haircut or €168m capital accretion if there is 100% take-up). I expect we will see some initiatives in the coming days from BoI to privately (that is, outside state control) fund the remaining ~€1.4bn capital requirement. It will be riveting to see how the forthcoming payment of preference share dividends is made to the NPRF.