Recapitalisation ‘will not be shock to system’

The Irish banks may need to be recapitalised following the stress tests later this year, but not at a level that would be a "shock to the system," said the secretary-general of the Department of Finance, John Moran.

Recapitalisation ‘will not be shock to system’

“I am very confident we will get through them [the stress tests],” Mr Moran told the Dáil Public Accounts Committee. “And if there is capital needed, it will not pose a risk to the system.”

The three domestic banks — Bank of Ireland, AIB and Permanent TSB — are subject to the ECB’s comprehensive assessment of the banking system over the course of this year. If any of the banks fail the stress tests they will be forced to raise capital.

The Department of Finance is very comfortable with the parameters of the stress tests, which were released last month, said Mr Moran. Consequently if any Irish bank fails, the capital required would be manageable, he added.

If Bank of Ireland fails then it would be up to the shareholders to make up the shortfall. AIB and PTSB are both state owned. The option of outside investment would be considered, but it would depend on what value it placed on the banks, said Mr Moran. The Government could also put the capital in either of these banks using “recycled” funds earned from the bank fees over the past few years, he added.

Mr Moran said there was “nothing sinister” about his decision to resign on Wednesday from a position he has held for less than two years. When he took over as secretary general in 2012, the economy was in crisis mode, but over the past two years, the State’s borrowing costs have tumbled to record lows and the banking sector has stabilised, he said.

“It has always been a principle of mine that you should find a way of making yourself redundant. If you make yourself indispensable, then you may miss future challenges elsewhere.”

However, independent TD, Shane Ross, queried whether the banking system was in a sound position.

ECB president Mario Draghi said a decision on whether to release a letter to the forthcoming banking inquiry, which was sent by his predecessor, Jean Claude Trichet, to Brian Lenihan in November 2010 about burning bondholders would ultimately hinge on the stability of the banking system.

“That would suggest that Mr Draghi does not share your [Mr Moran’s] view about the stability of the banking system.”

Mr Moran said he had not seen the letter sent by Mr Draghi to Sinn Féin MEP, Martina Anderson, so he could not comment.

Mr Ross also questioned why the Government supported a resolution on Bank of Ireland chief executive Richie Boucher’s €834,000 pay packet at its recent AGM. Mr Moran said the decision was based on the performance of the bank over the past year and the increase in shareholder value. The Government has a 14% stake in Bank of Ireland.

A decision on a possible sale of AIB will be made when the bank returns to profitability and after the stress tests. PTSB could potentially be an attractive takeover or merger target for a European bank, he added.

The Government is actively pursuing a bank recapitalisation for some of the €64bn of taxpayers’ money used to bail out the sector, but no decision can be made until the Single Supervisory Mechanism is up and running later this year.

The net cost of bailing out the banks so far is €40.7bn if the sale of its stake in Bank of Ireland and the value of its stake in the other two banks, combined with fees earned over the past few years are deducted, said Mr Moran.

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