Banks’ solution must serve economy first

ON October 30 businessman Philip Lynch, whose investment vehicle One51 holds stakes in NTR and the car ferries group ICG, called for the urgent re-capitalisation of the banks, which have been dangerously undermined by the global credit crunch.

Lynch, best known as the first boss of IAWS plc where he made Cuisine de France an international brand, had been asked to address the current economic malaise and suggest remedies.

He pulled no punches about what he thought needed to be done by the six Irish banks which are still hiding behind the protection of the State and taxpayer six weeks later.

First off the One51 boss called for the banks to be re-capitalised.

“Banks are not lending to each other, they are not lending to customers. This is having an increasingly negative impact right across the Irish economy. Businesses of all sizes and in all sectors are being affected.

“The re-capitalisation of the banks is an urgent matter and the sooner it is addressed the less damage will be inflicted on the many good, strong businesses that have been trading profitably and provide employment.”

Like others, since this crisis erupted, Lynch also called for the National Pension Reserve Fund to be made central to the re-capitalisation process which would mean a significant state involvement in banks for many years to come.

Two weeks on, his words have fallen on deaf ears.

So far AIB, Bank of Ireland and IL&P have all made it clear they do not want state investment. They are quite happy to avail of the protection of the State, but they do not want it to buy shares to help a re-capitalisation programme.

It is hard to fault the banks for not wanting to dilute the investments of their existing shareholders. Truth be told, the State appears to be in no rush to go down that road either. But for what it’s worth, Finance Minster Brian Lenihan was overheard discussing Anglo Irish Bank in the Merrion Hotel near the Dáil the other night.

What that signified, or who the parties to the discussion were, is not known, other than the fact that views were exchanged.

Anglo has always been regarded as the most vulnerable of the banks here, but such matters are no longer relevant given all now have state protection.

What is relevant now is that banks here do what’s necessary to facilitate lending to each other and the community — both business and personal — so the economy continues to function, as Lynch suggested.

As output falls, concerns are growing that the failure of the banks to resolve this issue could inflict further damage to an already battered economy that could slow recovery for years.

Listening to the banking chiefs, the fear is the bankers will act in a way that shows them in the best light possible, even if that is not in the best interests of the country or the economy.

It does not matter whether or not they need to resort to the State for funding, what does matter is that they find a solution to their funding difficulties in a way that serves the best interests of the country first and of the banks second.

One of the big dangers if this issue is not satisfactorily resolved is that Irish banks will have their status as lenders permanently damaged internationally.

They have done enough damage to this economy already and it is imperative we now pull ourselves out of this mess without delay.

Unconfirmed reports say the banks will try to raise billions of euro on international markets in a series of bond sales in the weeks ahead to sort out their balance sheets.

The Government is said to be working on the deal with them and the Financial Regulator is up to speed on what’s going down.

In the present uncertain environment such a resolution would be good news.