Exchequer borrowing could hit €30bn

EXCHEQUER borrowing could rise by a massive €10 billion to €30bn in 2010 as a result of the bank rescue plan.

If the Government decides to fund the future capital needs of Anglo, EBS and Irish Nationwide by direct borrowing, that would have obvious implications for the national debt, said chief economist Goodbody Stockbrokers Dermot O’Leary.

If the Government chooses that option, it would push the borrowing requirement up this year from €20bn to €30bn, he said.

Such a development might shock the markets but the payback to the state could be significant in time, he said.

In some cases it will get a full or majority holding in the Irish banks which can be sold on when the markets pick up.

At the end of February the exchequer borrowing stood at €77.5bn and the Government is currently committed to bringing the debt/GDP ratio back to 3% by 2014.

Today will bring the NAMA process more into the open when it is expected to disclose Bank of Ireland will take a 35% haircut on its first €2bn plus loans going to the bad bank.

Overall, the markets suggest BoI will face a 30% discount on its €12bn toxic loan book when the NAMA process is fully decided.

In AIB’s case it is looking at a 40% plus haircut on its initial bad debts and 35% on the full NAMA portfolio.

That is 5% above what Finance Minister Brian Lenihan initially indicated would be the case for the sector overall.

As D-Day emerges, speculation is mounting that the state will take 70% ownership of AIB. It may also end up with 40% of Bank of Ireland as it moves to end the uncertainty stifling the financially crippled banks.

Some have argued nationalisation is the way forward and it is expected that the finance minister in his addresses to the Dáil later today will embrace that idea more fully.

Apart from AIB, Irish Nationwide Building Society, due to transfer €8bn of its €10.5bn loan book to NAMA, could join Anglo and AIB as part of the nationalised banking sector, it was speculated yesterday.

AIB issued a statement saying it was locked in discussions with the minister about its future and is understood to be fighting hard for time to sell off assets to avoid falling under state control.

With the regulator due today to announce core capital targets of 7% to be in place by the end of 2010 that prospect has been sharply diminished.

It is understood the minister will spell out to the Dáil the need to have the banking crisis resolved without further delay.

One of the difficulties is that the estimates on the capital funding side are very hard to determine with one report claiming AIB could need up to €9bn in new capital, but most analysts are forecasting the figure will be closer to €5bn.

Initially, AIB was thought to require €4.4bn in fresh capital, while BoI is reckoned to need at least €3bn in new funding to satisfy the guidelines to be announced later today.

At this stage it is estimated the taxpayer will have to find at least a further €16bn to bail out the banks on top of the €11bn it has already pumped into the system.