Lenihan’s banking bill is tough but comes too late
The bottom line is that the banking crisis has cost up to €50bn, of which €35bn is going to cover the massive losses built up by Anglo. The rest is tied up in AIB and the other banks.
AIB has to raise another €9.8bn over the next few months and Bank of Ireland has to raise €2.2bn to bring them into line with tougher capital guidelines.
In future, for every €100 lent, the banks will have to set aside €12 in reserves.
As a result of the tougher capital guidelines AIB will probably end up 100% in state ownership and the new bill allows for that.
Bank of Ireland is 36% owned by the state but should remain independent.
Four of the Irish banks, including Anglo and Irish Nationwide, are now effectively nationalised.
EBS may be sold over the next few months, however, with Irish Life & Permanent or Cardinal Asset Management group in the race to buy the building society.
The new bill allows the Government to wind up Anglo and Irish Nationwide. The Anglo name should be gone in the first quarter of 2011 while Irish Nationwide is also headed for oblivion.
This bill reflects a very significant change in approach to the banking crisis.
It followed a visit by Brian Lenihan to Brussels, in mid September, to discuss the twin strategy of a good bank and a bad bank for Anglo.
It was made clear at that meeting that neither the EU nor the ECB wanted any further messing around with Anglo.
The ECB was perturbed that the banks were still dictating the pace and that the lunatics were in effect still running the asylum.
In response, the minister has taken serious power into his own hands — too much according to the opposition parties — through the bill which has the imprint of the IMF/EU bailout on it.
Under the terms of the bill, the minister can force the banks to sell assets in order to shrink them to manageable size.
It’s a move to ensure they can never again trade themselves into a position that undermines the solvency of the state.
Even as the state bailed out the banks, it failed to impose some of the key changes it had sought.
It failed to have an outside chief executive appointed and had to accept Colm Doherty taking charge of AIB.
He had been boss of the group’s capital markets operations. Doherty has since gone and has yet to be replaced.
Meanwhile, the €40m bonuses to Doherty’s former colleagues in the capital markets division was mooted and the new outside executive chairman David Hodgkinson, was powerless to halt that move.
In a key move the bill addresses that issue and the minister has power to appoint outside executives off his own bat to any of the banks if he dislikes how they are being run.
Overall, the bill reflects badly on the Government’s previous handling of this crisis and the bill was too late.
Tougher moves against the banks were needed sooner.
The catalogue of events and the way the banks drip- fed the minister the bad news, shows this Government wasn’t up to the task.
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