Merrill Lynch 'warned Govt that banks guarantee could be mistake'

The Public Accounts Committee is releasing documents relating to events in the lead-up to the Government's decision to impose a banking guarantee in September 2008.

Financial management company Merrill Lynch warned Minister Brian Lenihan that a blanket guarantee to cover all banks could be a mistake, according to documents released today by the Public Accounts Committee.

About 50 documents have been released, relating to events in the lead-up to the Government's decision to impose a banking guarantee in September 2008.

The documents include details of meetings involving the Minister and Department of Finance, companies such as Merrill Lynch and global investment banking and securities firm Goldman Sachs, and even the Taoiseach's speaking points, for his reference in the wake of the guarantee announcement.

The documents include the minutes of a meeting between department officials, Minister Brian Lenihan and representatives of Merrill Lynch, who told the gathering that Ireland was in the midst of the worst-ever credit crisis.

Merrill Lynch felt that a blanket guarantee for all banks could be a mistake, with the potential to hit national rating and allow poorer banks to continue.

The documents give new context to the decision to extend the €440bn guarantee to deposits in the country's banks.

As outlined in newspaper reports this morning, the documents show that in a discussion just three days before the bank guarantee scheme was introduced, Patrick Neary, the Financial Regulator at the time, said there was no evidence to suggest Anglo Irish Bank was insolvent as a going concern.

He said it was simply unable to continue on the current basis from a liquidity point of view and added that Irish Nationwide was in a similar situation.

But the Assistant Secretary of Department Finance noted that the Government would need a good idea of the potential loss exposures within Anglo and Irish Nationwide.

David Doyle added that, on some assumptions, Irish Nationwide could need €2bn and Anglo €8.5bn.

Three days earlier, David Doyle had been given an options documents from the Irish Nationwide chairman Michael Walsh which suggested a number possible solutions - including covert cash support - for Irish Nationwide or nationalisation.

The documents seem to favour a takeover of Irish nationwide by Anglo but said Anglo would have to get State support if this were to be done.