IL&P may need €1bn in state aid

IRISH Life & Permanent may need an injection of up to €1 billion in state funding once details of the stress tests are announced tomorrow.

Reports of the proposed stake sent the group’s shares plunging in Dublin yesterday and raises the prospect of a merger between IL&P’s banking arm and EBS Building Society.

Until yesterday’s shock revelation it was expected that EBS was likely to be taken over by the Irish backed Cardinal Group in conjunction with US billionaire Wilbur Ross.

If the EBS faces tougher funding requirements than already outlined then Cardinal could be forced to re-think its position if it has to come up with more money than originally envisaged to acquire EBS.

The problem facing IL&P is that its banking arm Permanent TSB borrowed heavily to fund its mortgage lending and its €38bn loan books is seriously out of line with its €19bn deposit base.

IL&P were not commenting yesterday on its dramatic change in fortunes. It is the only Irish bank to have survived the banking crisis without state intervention.

In advance of tomorrow’s stress test findings from the Central Bank Dolmen Stockbrokers has warned all of the €25bn contingency funding contained in the €85bn EU/IMF bailout may also be required to recapitalise the banks.

That is on top of the €10bn already earmarked under the bailout and that would absorb the €35bn set aside to deal with the banking crisis under the bailout.

To date the state has injected €46.3bn into the distressed Irish banks.

Eamonn Hughes of Goodbody Stockbrokers said the need to recapitalise the group’s banking arm to make it independent of the life and pensions business could require over €1bn.

Once the Central Bank’s stress tests are made known tomorrow they “may drive this base figure higher again,” he said.

It is also been speculated that the Government may now give an update on the cost of bailing out Anglo Irish Bank which was the first of the country’s lenders to be nationalised, when it publishes the results of stress tests on the banks.

It said back in September that Anglo Irish would need between €29.3bn and possibly as much as €34.3bn before it is finally wound up.

(Additional reporting Bloomberg)

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