Refund rules may cost the Exchequer €500 million

THE Exchequer could lose out on bank payments worth at least half-a-billion euro next year after the European Commission imposed strict new rules on how AIB and Bank of Ireland will refund the Government, Fine Gael’s finance spokesman Richard Bruton has warned.

His claim follows a statement to the markets yesterday by AIB, one of the country’s two major banks, that the commission has instructed that it “should not make coupon payments on its Tier 1 and Tier 2 capital instruments unless under a binding legal obligation to do so” while the commission is assessing the bank’s restructuring plan.

Mr Bruton called on Finance Minister Brian Lenihan to immediately clarify how taxpayers can expect a return from the €7bn billion Fianna Fáil has poured into the two main banks consisting of €3.5bn in each for a 25% equity stake, following this latest development from Brussels.

The preference shares issued by the Government pay a dividend of 8% equal to a total of €560m annually, or €280m from each bank.

Last night, Mr Bruton called on the finance minister to clarify this further threat to the taxpayers without delay.

“Having bailed out AIB and Bank of Ireland by investing €7bn in shares, Brian Lenihan’s plans to get regular dividend payments from the banks are now looking very uncertain.

Although the European Commission has approved the Government bailout, it looks like the banks will not be allowed to make the regular dividend payments that Brian Lenihan was expecting, he said.

“The Government has already blown €4bn on Anglo Irish Bank, an institution which should have been wound down by now.

“So taxpayers cannot afford yet more incompetence from Mr Lenihan, let alone any more bailouts of spendthrift banks,” he said.

The claim by the minister that the taxpayer would make a profit from the bailout of the banks looks less certain than it did before.

That could be crucial to the budget arithmetic if the €560m dividend receipts promised by Mr Lenihan are to be included in the Government’s budget forecasts, he said.

A spokesman for the minister last night moved to allay any fears that the commission ruling could cost the state over a half-a-billion euro in lost dividends in 2010 alone.

Further consideration will be given to the payment of these coupons during the ongoing discussions with the European Commission on the bank’s restructuring plan.

The bank will strive to find a way to ensure that it can pay the dividends due to the Government on its capital investment in the bank “in cash rather than activating the alternative mechanism which would give rise to issuance of ordinary shares” that would lead to the Government having to increase its stake in the bank from 25% to over 40% based on the current worth of AIB’s shares.

The spokesman added that the commission has already indicated it will support efforts by AIB down the line to raise private capital.

That would include measures “aimed at providing adequate remuneration to the government’s preference shares without necessarily diluting existing shareholders,” he said.


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