Government ‘unlikely’ to recoup €30bn bailout

The Government is unlikely to secure a recapitalisation through the European Stability Mechanism (ESM) either for legacy assets or if the banks fail the stress tests next year.

Over the weekend, Michael Noonan, the finance minister, said in an interview with RTÉ that he had started preparations to recoup some of money pumped into the pillar banks via the ESM.

“I would like to have the main ask designed on the Irish side in the autumn and my conversations with the principals of the so-called troika that oversees eurozone bailouts well under way,” Mr Noonan said on RTÉ television.

“If we go there naively and put out our hand and say give us the money we won’t succeed,” the finance minister added.

“So what I have just started to do now is to construct a piece of financial engineering, something analogous to what we did with the promissory note, so that what we will be looking for will uniquely apply to Ireland, that it would use the ESM in the full latitude of its provisions.”

There are two potential strands to Mr Noonan’s negotiations.

The Government is looking to get back some of the €30bn it has pumped into AIB, Permanent TSB, and Bank of Ireland through a retrospective recapitalisation from the ESM.

Also, if the banks fail the stress tests next year, the Government will also look to make up the capital shortfall from the ESM.

However, DCU banking expert Tony Foley says the Government’s efforts are unlikely to prove successful on either front.

In terms of the Government’s stake in the three pillar banks, there would have to be agreement among eurozone creditor countries to recapitalise the banks based on long term economic valuations rather than current market value.

Otherwise the Government would be giving away these assets in a firesale and foregoing any future upside potential, said Mr Foley.

However, there is unlikely to be any agreement in principle to recapitalise the banks, he added.

The total ESM fund for bailing out the banks is €60bn. There will be an EU-wide stress test of the banking system conducted next March.

Preliminary estimates suggest there could be a capital shortfall of €1tn across the region.

The capital hole in the Irish banks ranges from between zero to €15bn, says Mr Foley.

“If the Irish banks need only €1bn following the stress tests, then they will probably be able to get it themselves.

“But if they need €10bn then the Government will have to come up with it.

“The Government will look to the ESM, but the Germans are likely to oppose a deal on the basis that it is legacy debt.

“They will say these losses were incurred before there was European banking supervision.”


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