Members left with no choice as third banking force edges closer

WITH shareholders of Irish Nationwide and EBS voting in favour of allowing the Government to pump a total of nearly €2.5 billion into their coffers the process of creating a third banking force has taken a step closer.

Both societies, under instruction from Finance Minister Brian Lenihan, have already started merger talks, but these are only at an early stage.

Irish Nationwide’s chairman Danny Kitchen told shareholders at yesterday’s special general meeting there was little substantial to report on the talks, which were at an early stage.

The Government hopes that the merger of the two societies will form the basis of a third banking force.

Later it is hoped that Irish Life & Permanent will transfer its banking arm, Permanent TSB, to strengthen the base of the alternative bank.

Permanent TSB is the biggest player in the mortgage market and would prove vital competition to AIB and Bank of Ireland in the new market place.

It has a proven track record in providing mortgages.

In a depressed housing market montage lending will not be the major concern of the economy, with less than 20,000 housing units due to be built next year in contrast to over 90,000 in 2006.

The real concern for the economy now is the lack of credit to businesses.

The fear is that neither Bank of Ireland nor AIB will be capable of meeting that need as they continue to struggle with funding issues for the next few years to meet the more stringent capital requirements of the global markets.

Both banks, and AIB in particular, have clouds hanging over them.

So while the creation of a new banking force sounds like a dynamic proposition it may not even remotely resolve the problem of credit being available to struggling Irish businesses at present.

On the plus side, Mr Kitchen under questioning at the special general meeting said there was little chance that Irish Nationwide will ever get back in to lending for commercial property development, the practice that in effect has bankrupted the society and its thousands of members.

Their deposits are fully guaranteed and will remain so under the Government guarantees.

Members were angry yesterday at the lack of accountability within the society and asked why interim results were never produced or why the fees paid to directors had never been published in the past.

It is hard to resist the analogy with the Catholic Church and the lack of accountability that has also been blatant within Irish banking circles.

It emerged yesterday also that Michael Fingleton, who controlled the society for decades has still to pay back the €1m bonus he took form the society in his last year in office.

Furthermore the chairman said the society was legally powerless in trying to address that issue.

In the end members had no option but to vote in favour of the state funding.

It was a bit like turkeys voting for Christmas because the net impact of the moves currently under way is that existing members of the society will end up totally marginalised from a group they once owned 100%.