Ideological posturing of little use to economy
Crucially, perhaps, it gives Finance Minister Brian Lenihan an option beyond the private equity scenario. That option has caused much angst among the trade union movement — which wants the banks nationalised — and among the broader financial community which fears if the Government opts for the private equity solution, it will do long-term damage to the banks.
It is the nature of equity funds to get in and out within five years, which means they will be preparing a sell-off of the banks just three years after the Government guarantee scheme expires in September 2010.
As a counter proposal, IAIM has close to €2 billion lined up to invest and it wants the state to co-invest a similar figure.
Among the 10 investors lined up are Irish Life Investment Managers and Bank of Ireland Asset Management. Clearly these are owned by the banks in need of a bailout and are governed by strict guidelines about how and where they invest their money.
The IAIM package changes the ball game for Finance Minister Brian Lenihan and for the US private equity funds keen to get their hands on the four Irish banks.
The Mallabraca consortium, as it is known, comprises giant US private equity groups JC Flowers and the Carlyle Group, who are prepared to invest €5bn in Bank of Ireland.
It also has funds to buy into Anglo, suggesting a total investment of up to €8bn is available for recapitalisation purposes. And the consortium has told the Government it was prepared to lend €60bn to small business over five years.
Bloxham Stockbrokers have dubbed the new proposed financial package from IAIM the “Eire Fund”. It sees the move as a positive one for the Irish economy and the banking sector in general.
It added the fund was welcome, for in the current climate of stalking private US equity funds, Bloxham warned there was an “explicit danger” that the fate of Irish banks would be transferred from one group of short-term investors to another.
Bloxham argue that hedge funds have done their dirty work and the danger now is that equity funds, notorious for taking the short view, will do just that and leave the banks bereft at the end of the day, again victims of the quick kill attitude.
Professor Ray Kinsella of UCD disagrees.
Kinsella has made no secret of his disdain for the banks and those who run them and does not favour the fund managers, who sat on their hands while the banks got high on fat bonuses and salaries, directly attributable to the property boom they underwrote. Our finance minister has also adopted a similar stance. Let the bankers pay for their sins. That it is a view shared by thousands of struggling citizens.
But there is one inescapable fact. The banks need money and further support from the state if they are not to be totally overpowered by the big private equity funds.
Sweden was in a similar predicament in 1992 and the state took the decision to invest in the banks.
It recovered within a few years while the Japanese dithered in the 1980s and their economy is still paying a huge price for that inaction.
Ideological posturing from whatever quarter is of little use to the banks or to the economy right now.
We also have to get over the thirst for revenge and come up with a package that resolves this issue in the interests of us all.
