Banks' reaction - IL&P 'disappointed'Thursday 31 March 2011 21.29
Irish Life and Permanent says it is extremely disappointed by today's announcement from the Central Bank that it needs €4 billion and that its current structure will be unwound.
Group chief executive Kevin Murphy said it had been the group's strong belief that the group could have avoided the outcome which arose today.
'The result will have major implications for our group and our shareholders and we will have to manage a challenging situation now to protect the franchises of our core businesses and position ourselves as strongly as possible to adapt to the new situation,' he said.
Finance Minister Michael Noonan said today that Irish Life & Permanent is to be restructured, with the state likely to take a majority stake. IL&P will also sell off its Irish Life Assurance business.
IL&P said that the assessment of loan losses for the years between 2011 and 2013 by Blackrock Solutions, on behalf of the Central Bank, resulted in losses of €2.5 billion over the three years. This compares to losses of €1.6 billion based on its own modelled outcome, which IL&P had considered 'prudent'.
The group said that the approach taken by Blackrock implied a doubling of defaults from current levels, the rapid foreclosure by the bank on defaulters and higher losses on sales of repossessed homes.
Bank of Ireland said it was working with advisors on initiatives with a view to raising the €4.2 billion it needs through a combination of capital management initiatives, other capital markets sources, and support from existing shareholders.
‘We expect to be in a position to make an announcement on our capital plans in the coming weeks.’ a statement said.
The bank said the money to be injected into the bank would ensure ‘a sustainable, robust future for Bank of Ireland as a systemically important bank’.
It said the businesses it would wind down would include portfolios of UK mortgages, some international niche businesses, some of its international commercial property portfolios and loans of less than €20m which are being transferred to NAMA.
AIB said it welcomed the proposal to combine its operations with those of ESB and would update the market as the details were finalised.
It said the significant amount of capital to be raised by the bank was designed to 'definitively assure all stakeholders, including depositors, other customers, staff and investors, that AIB will continue to be a systemic part of the Irish banking sector'.
AIB said the strong capital base that would result would enable it to play an active role in the recovery of the Irish economy, and speed up its own recovery so that it could reward taxpayers for their investment in the bank.
EBS Building Society said it welcomed the decision of the Minister for Finance which clarified its future status through a combination with the AIB.
EBS said it understood and accepted the Government's need to restructure the banking system to support the economy and would play its part in the process. 'The society acknowledges its clear new direction and will work with AIB to maximise its value and serve the needs of its customers,' it said.
Trade unions express concern
The IBOA is seeking an urgent meeting with Minister for Finance Michael Noonan. The union is concerned that his proposals to restructure the sector will result in significant job reductions.
'While we accept that some redundancies may be inevitable, we believe that, if the aim of the exercise is to achieve a working banking system capable of serving the needs of customers as well as the demands of the economy, then bank employees should be considered as absolutely vital to the solution - rather than as part of the problem,' said IBOA General Secretary, Larry Broderick.
He said that short-termism had been a major contributory factor creating the current crisis and that it will only be compounded if the Government tries to resolve the crisis through short-term actions.
The UNITE trade union said it would use a pre-arranged meeting with the Central Bank on Monday to 'assert the right of its members to fair treatment in the restructuring process.'
It urged the government to consider carefully the human cost for workers over whose future it said there will now be great uncertainty.
'There are many thousands of workers and their families who will be anxious tonight over their personal future,' said UNITE Regional Secretary Jimmy Kelly.
'They have not caused the problems of the banking system but will now be afraid that they will be the ones asked to pay the ultimate cost in terms of their jobs and financial security.'