Europe approves €875m EBS deal

THE European Commission has temporarily approved the Government’s €875 million recapitalisation of the EBS.

The building society submitted its restructuring plan on Monday this week – unusually in advance of the approval required under state aid rules.

The plan is designed to show that the EBS can become viable without state aid and controlled by private equity or by the state. It also costs alternative scenarios including being gradually wound up or liquidated.

The state aid to be paid over 10 years is, according to the competition commissioner, Joaquin Almunia, appropriate to preserve financial stability and maintain confidence the Irish financial markets.

“The EBS needs a significant re-capitalisation to comply, and to continue to comply in the coming years with capital requirement rules. The measure is therefore appropriate to preserve financial stability in Ireland and can be approved for six months to that end,” Mr Almunia said.

The 75-year-old building society that traditionally served retail customers and SMEs ran into difficulties as a result of diversifying from 2005 to lending to the commercial real estate sector that was severely hit by the housing bubble collapse.

The Government became the majority 51% owner when it injected €100m last week and promised a further €750m when it failed to find a private investor.

The funds were needed to bring its capital reserves to the required levels, in particular regarding core tier 1 capital. The Government notified the commission of this at the end of April.

The Government in March said it would inject €100m into the EBS through issuing Special Investment Shares and would provide private capital for the remaining €775m required if a private investor was not found.

The building society’s annual general meeting was told on Friday that the Government will issuing the capital through promissory notes with the funds being paid in tranches of €78m a year over the next decade.

The EBS has opened negotiations with a private equity consortium led by Cardinal Asset Management about taking a majority stake. The AGM heard that the society could become a private company and in such an event the Government’s €100m would be converted into fully paid ordinary shares and would have a right to 100% of all surplus proceeds in the event of a sale.