€70bn: The total cost to the taxpayer of the bank bailout ... but bondholders will pay nothing

THE Government will have to pump up to €24 billion more into the crisis-ridden banks after the ECB ruled out burning senior bondholders in AIB and Bank of Ireland.

It will bring the total cost of the bailout to more than €70bn, with Central Bank governor Patrick Honohan admitting it was “one of the costliest banking crises in history”.

It could also mean thousands of job losses in the banks under the significant downsizing plan unveiled by Finance Minister Michael Noonan.

Fine Gael and Labour had pledged during the election campaign to make senior bondholders share in the banking losses. But the Coalition was forced to admit yesterday that its proposals had been shot down by the ECB.

Mr Noonan revealed the plan for the banks in the Dáil shortly after the Central Bank had published details of the stress tests conducted on the four main financial institutions.

The tests showed the banks would need a further €24bn to shore up their capital bases to cope with potential losses.

- AIB will require an additional €13.3bn.

- Bank of Ireland will require €5.2bn.

- ESB will require €1.5bn.

- Irish Life & Permanent (IL&P) will require €4bn.

The €24bn injection will come on top of the €46.3bn already ploughed into the banks, bringing the total cost of the bailout to €70.3bn.

The Government sought to make clear that the injection — the fifth attempt to recapitalise the banks — was a direct consequence of the previous administration’s failures to fix the problems in the sector.

The institutions will be radically overhauled in a bid to create two full-service “pillar banks” and restore international confidence.

The first pillar will be Bank of Ireland, which will be given until June to seek private sources of capital and avoid being nationalised. If it cannot find that funding, the state will step in with the €5.2bn injection and take control.

Mr Noonan said the bank would become “significantly more domestically focused” and sell about €30bn of other assets in the coming years in a bid to raise capital.

EBS will be merged with AIB, which will become the second pillar. These two institutions combined will sell some €23bn of assets.

Mr Noonan said that during the transition, customers should continue to do business with either bank as before and “over time the fuller services of AIB will become available to the customers of the EBS who will obviously retain the protection of the state guarantee for their deposits”.

IL&P will for the moment remain independent, but will seek to sell its life insurance subsidiary Irish Life as well as other assets. The Government has not ruled out taking a majority stake in the bank.

Anglo Irish Bank and Irish Nationwide are being wound down and did not feature in the stress tests.

Mr Noonan said it was not envisaged that either of those two institutions would need more capital, but that if they did, the Government would enter fresh negotiations with Europe about burden sharing.

He promised to “change the governance” in the banks as part of the restructuring, saying there would be an overhaul of the boards.

His department confirmed the restructuring would mean job losses. The IBOA, the largest union in the sector, said it would be seeking an urgent meeting with Mr Noonan.

But Mr Noonan said the “radical restructuring” was designed “to put the banking system on a firm footing for the future and break the bonds with our toxic banking past”.

Taoiseach Enda Kenny said he hoped the cash injection “is the final scale of it”, and that he expected this would be the case because the stress tests were so rigorous.

But Fianna Fáil warned that the tests were so severe they could send out the wrong signals about the economy and actually undermine confidence in Ireland.

Sinn Féin, meanwhile, criticised the Government for abandoning its pledges to make senior bondholders share in the losses.

Summing up

- WHAT’S THE TOTAL BANK BAILOUT BILL NOW?

A massive €70 billion — about €46bn has already poured in and an additional €24bn was committed yesterday.

But who’s counting?

- IS THIS THE END OF IT?

The Government and Central Bank say yes. The ECB and the IMF say hopefully. But the sceptics say no.

In truth no one knows, because so much depends on economic recovery.

Fingers crossed.

- WILL ALL THIS DEBT SINK THE COUNTRY?

In sporting parlance the Government has just put up the mother of all Hail Marys.

The Coalition is trying to separate the bank debt — somewhere north of €170bn — and the national debt — close to €100bn — but this is just a bookkeeping exercise.

Our total tax take is projected to be €35bn this year. We have to cut €3bn from current spending and borrow another €19bn to stay afloat. Our interest payments will hit €9bn annually by 2014.

You do the sums.


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