Private equity holders ‘still interested’ in bank sector

BANKING analyst Ken Darmody yesterday welcomed the fact that private equity holders were still interested in getting involved in the Irish banking sector.

The Goodbody Stockbrokers analyst was responding to a Dublin newspaper report yesterday that Cardinal Capital Group has been in touch with the Government about a possible buy-out of EBS building society.

“It’s an obvious positive for the country that private capital remains interested in the Irish banking sector”, despite the higher capital levels being imposed by the regulator to ensure the banks are adequately capitalised to deal with any future crisis, he said.

He warned a victory for private equity could make it more difficult for IL&P to get its hands on EBS.

It could lead to the bancassurance group having “to negotiate a deal to merge with the acquired EBS which could lead to shareholder dilution,” he said.

“With the Financial Regulator increasing capital targets in Ireland to 12% at a Core Tier 1 level, it was always going to be intriguing to see what level of interest would remain for EBS,” he said.

That Cardinal is still interested is indeed a welcome development in the current environment, he said. It is understood Cardinal has already been in touch with government officials offering to split the additional capital requirement of €438m to fully capitalise EBS, between them and the Government.

Cardinal believes that higher capital requirements at EBS and PTSB, IL&P’s banking subsidiary, will weaken IL&P’s chances of getting control of the society.

It has been the view that IL&P had the inside track in terms of getting control of EBS as part of the consolidation of the Irish banking sector.

EBS must now raise €963 million to bring its capital ratio above 12%, the new target set under the €85bn rescue plan for the Government and the banks agreed by the EU and the IMF.

Cardinal is now seeking to carry out an exchange or buyback of debt held by EBS subordinated bondholders that could generate more than €100m to help meet the new target.

Cardinal backed by US buyout firms the Carlyle Group and WL Ross and Co, is negotiating with the Government about splitting the new capital levels set under the terms of the bailout.

That comes on top of the €525m to be raised under the Central Bank’s previous capital target for EBS, which was a much more modest €438m.