Minister’s hand strengthened in Irish bank drama

AS RIVAL investors battle to inject billions into the six Irish-owned banks, significant uncertainty still surrounds their future.

Several issues remain to be resolved — not least the possibility of private equity funds buying big chunks in the banks.

Already Bank of Ireland (BoI) is talking to Mallabraca, made up of private equity firms JC Flowers and Carlyle among others.

It has also spoken separately to other investors including groups KKR and TPG and one unidentified party. Nothing has been agreed but a €5bn investment by Mallabraca in BoI is on the table.

Opposition politicians and the trade unions have warned that private equity funds, represented would invest only for short term gain to the detriment of the economy and banks.

They highlight Eircom as the classic example of what happens when those whose only loyalty is to its own investors, get hold of a vulnerable company.

Critics argue they will get their holdings for a snip, do little in the intervening period to re-establish the damaged Irish banking sector, and sell off for a fat profit once share prices recover.

Today, bank executives will meet the Finance Minister Brian Lenihan, for the second time in a week to update him on developments, as he requested.

It is understood those private funds have also spoken to other banks including AIB.

But the re-capitalisation issue moved up a notch yesterday when the Irish Association of Investment Managers (IAIM) said a number of Irish funds including BoI Asset Management, Irish Life Investment Managers and AIB were prepared to invest €2bn to re-capitalise the banks, if the state stumped up another €2bn.

IAIM added it could also raise further funding from overseas funds, who have been investors in the Irish banks for many years.

This move by IAIM got an immediate welcome by the minister who has serious issues over the private equity question.

A split looks to have emerged within BoI over this. Chief executive Brian Goggin is against bringing in private equity, but one of his most senior colleagues Richie Boucher has come out in favour of such a move.

And it looks as if the strains of the re-capitalising issue has also triggered a battle for the top job as Boucher, according to a report in a Dublin newspaper yesterday, is presented as being in open dissent with his chief executive.

On this basis it could be at least a month before clarity emerges.

The minister wants consolidation, and if he is to go down the IAIM route sources say he will make consolidation a condition of State backing.

In that sense the IAIM package looks to have strengthened the minister’s hand even if that was not the aim of the proposals.