FINANCE Minister Brian Lenihan announced plans to pump e7 billion of taxpayers’ money into the country’s two main banks last night just hours after admitting he had not fully read a crucial report about the financial institutions the Government is helping.
Under the recapitalisation scheme, the Government will provide e3.5bn of funding to Allied Irish Bank and Bank of Ireland in return for preference shares, the right to nominate board members and a range of other concessions from the banks.
These include measures designed to help struggling homeowners and small businesses, as well as a cut of at least 33% in senior bankers’ pay.
But Mr Lenihan came under fire after admitting he had failed to read in its entirety a due diligence report on the financial institutions the Government is assisting.
The controversy arose after it emerged that Anglo Irish Bank may have sought to misrepresent its financial strength prior to its meltdown by securing billions of euro in temporary deposits from another bank.
The Government guarantee scheme, announced in September, covers Anglo, AIB, Bank of Ireland, Irish Life & Permanent, Irish Nationwide and the EBS.
The Government appointed PricewaterhouseCoopers [PwC] to conduct a due diligence report on the six institutions.
Yesterday, Mr Lenihan admitted the controversial Anglo deposits had been raised in the report, and that officials in his department had alerted the Financial Regulator to it last October.
But the officials failed to inform Mr Lenihan of the issue until January and he had not noticed it before then because “I did not read the entirety of the report”.
When it was brought to his attention, the questionable nature of the deposits was one of the principle factors in his decision to nationalise Anglo rather than recapitalise it, he added.
But he did not inform the Taoiseach nor the cabinet of the fine detail of the deposits controversy, instead simply making them aware that there were “corporate governance” issues at the bank.
It stunned the opposition, with Fine Gael and Labour saying the minister should question his position.
But speaking later Mr Lenihan shrugged off the criticism and dismissed suggestions he should resign.
Under the scheme, the Government will receive an annual dividend of e280m from each institution in return for the injection of capital. The Government will also have the right to appoint a quarter of each bank’s board of directors.
Both banks have agreed to increase lending capacity to small and medium businesses by 10%, and to increase lending to first-time buyers by 30%.
The banks have agreed not to commence court proceedings for repossession of family homes until 12 months after arrears have first arisen, provided the customer continues to “cooperate reasonably and honestly” with them.
Labour finance spokeswoman Joan Burton said: “The Government will only be in a position to appoint 25% of directors. Many of those who steered the banking ship onto the rocks will remain at the helm.”
Fine Gael finance spokesman Richard Bruton said it was a e7bn gamble “on the wrong horse”.
“This approach has not been successful in kick-starting lending in other economies… This will pump capital into unreformed and unreconstructed banks with bad debts.”
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