EC ruling on AIB payments criticised

THE move by the European Commission to block AIB paying interest of €280 million to the state for its €3.5 billion capital injection could have serious implications for the banking sector and the Irish economy.

Kevin McConnell, head of research at Bloxham Stockbrokers, was commenting yesterday at the launch of the group’s latest review of the stock markets and of the economy.

He said the use of the phrase “unintended consequences” by the EC in relation to the ruling it has put in place was a cause of serious concern.

If the banks here are forced to default on the coupon or interest payments agreed with the state it will force the Government to increase their holding in both Bank of Ireland and AIB if the same restrictions are imposed on Bank of Ireland also, he said.

The move suggests a “failure by the Commission” to appreciate the Irish banking situation is very different to the Benelux countries where they are subject to a much higher level of cross border banking competition.

At present foreign banks in Ireland are no longer lending due to their own domestic troubles.

That means the burden of lending will on the two major banks who could by default end up accounting for a much bigger slice of bank lending in Ireland.

McConnell said he disliked the phrase “unintended consequences” used by the Commission to describe the ban imposed on certain interest payments by AIB.

This block has been imposed, the EC said, while it ponders the rescue plan AIB has put before it.

AIB has been obliged to submit the plan for clearance by the EC as it gears up to trade its way out if its current difficulties that have forced it to transfer €24bn of bad and dubious property loans to the National Asset Management Agency.

McConnell’s comments follow strong criticism of the EC ruling by Fine Gael’s finance spokesman, Richard Bruton, following the AIB announcement on Tuesday.

He said the ruling could rob the Irish taxpayer of €560m in interest payments from the two major banks and cast further doubt over the whole rescue package being put in place by the Government to prevent the banks here from buckling under the weight of their bad debts.

McConnell said his fear was the EC has failed to grasp the fact that the Irish banking system is not the same as the rest of Europe and could well do without this kind of unhelpful interference at this critical juncture.


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