Bank capital figures ‘truly shocking’
Announcing the historic bank bailout of around €75 billion, Mr Lenihan said the figures provided to him by financial institutions on their capital situations were “truly shocking”.
He said: “At every hand’s turn, our worst fears have been surpassed... Our banking system, to a greater or lesser extent, engaged in reckless property development lending. In too many cases there were shoddy banking practices.”
The taxpayer is to shoulder an estimated €43bn in costs for this reckless lending as the state takes over responsibility for €81bn worth of toxic debts with an average reduction for NAMA of 47%.
Revealing the extent of the burden, Mr Lenihan quoted a number of international politicians who praised Ireland and made an appeal to the public that: “Others believe in us. We must now begin to believe in ourselves... Having stabilised our public finances we must move to the final phase in stabilising our banking system.”
He said: “There has been much criticism of the length of time it has taken us to get to this point. I reject that criticism. Crucial pieces of the jigsaw had to fall into place before we could embark on this ultimate phase of our bank rescue.”
He said Irish people had shown “grit and determination in facing up to our severe budgetary difficulties and it has paid off”.
He said the Government has “acknowledged the scale of our problems and we have taken the necessary actions to solve them.”
Mr Lenihan said he was taking “the least worst option” by pumping more money into the nationalised Anglo Irish Bank, which is set to cost the taxpayer more than €40bn.
The figure includes the €4bn of state cash already provided to the bank, the €8bn injected yesterday with a promise of a further €10bn and the effective €18bn it will give, through NAMA, for taking over €36bn worth of bad loans with a 50% discount.
But winding down the bank, as the opposition proposed, would cost up to €100bn, including a €30bn loss through a firesale of assets and €70bn to meet upfront deposits, bondholders and liabilities, according to the Finance Minister.
He said this would lead to enormous instability for the state, with long-lasting damage to the Irish economy.
“I understand the impulse to obliterate it from the system,” said Mr Lenihan.
“The sums required to rescue the bank are enormous but the costs of winding it down are even greater.
“The realisation of the costs involved and the wider disruption to the financial system would generate enormous instability for the state with unforeseeable but potentially long-lasting damage to the overall economy.
“The unavoidable reality is that the bank has incurred losses from its large-scale property lending and needs substantial further capital.
“Unpalatable as it is, only the taxpayer can provide that capital. It is the least worst option. For that reason, I am providing €8.3bn this week to support the capital position of the bank to take account of the bank’s losses to date.
“Additional capital support is likely to be required depending on the NAMA discount on the first tranche of Anglo’s loans.”
The minister was accused of “bottling it” by giving in to AIB demands to give it more time to raise the €7.4bn capital injection needed to balance its books.
It will have until the end of this year to have this money on its books in order to meet regulatory requirements but will have to outline to the Government at an earlier date how it will do this without the Government stepping in and taking a majority stake.
Bank of Ireland has “a strong future” according to the minister but it must also raise additional capital of €2.7bn.
He said: “The state expects to remain a minority shareholder in the bank.
“In recapitalising Bank of Ireland we will secure an institution that will maintain a presence in the international capital markets, provide loan finance to individuals and businesses and support our economic recovery.”
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