THE GOVERNMENT has injected a further €525 million in cash into the EBS building society to meet the capital target set by the Central Bank last March, though the lender requires a further €438 million before the end of February.
The latest bailout for EBS was made on Tuesday in return for the Government taking further special investment shares in the building society, bringing the total amount of taxpayer funds invested in the lender so far to €875 million.
EBS said the building society intended to enter into “a relationship framework agreement” with the Minister for Finance to govern its relationship with the State. The lender acknowledged the continued support of the Minister and the assistance of the Central Bank of Ireland in these matters and is extremely grateful to the Government for the recapitalisation.
The investment shares give the Minister full control of EBS, including board appointments and passing members’ resolutions.
The building society is one of three institutions fully controlled by the Minister. Allied Irish Banks is set to fall into Government control before the end of the year.
In the event of EBS being converted to a company, the Government’s shares will be converted to ordinary shares. The building society is on the market and the latest bailout was made in the absence of a private investor putting in funds through a sale.
The State took control of EBS last May when the Government injected €100 million cash in return for special investment shares. A further €250 million was provided in June through a promissory note, a form of State IOU, which allows the State to inject capital in the lender over time.
The Government decided to inject the remaining €525 million as it had committed itself to recapitalising the building society further last March to meet a core tier one capital ratio – a measure of a lender’s reserves to absorb losses – of 8 per cent by the end of the year.
The Government had hoped to have a sale of EBS agreed before the regulator’s year-end deadline, but the setting of another capital target of €438 million last month under the EU-IMF rescue plan has delayed the sale until next year.
A new deadline of January 17th has been set for final bids from the remaining two parties in the race – Irish Life Permanent (ILP) and a private equity consortium led by Dublin firm Cardinal and backed by US buyout firms WL Ross Co and Carlyle.
The Government is drawing on exchequer funds for the €525 million. A sale to the Cardinal consortium would be likely to be made with an external investment, which could allow the Government to reduce its investment in EBS by lowering the sum injected under the promissory note.
Payments to EBS are due to start next year through the note.
A spokeswoman for the Department of Finance said the €525 million was being invested this year so as to avoid increasing the Government’s 2011 budget deficit and due to the delay in the sale of EBS.
The bank restructuring Bill, the Credit Institutions (Stablilisation) Bill, which came before the Dáil yesterday, changes the rules for the National Pensions Reserve Fund, allowing it to invest in non-listed companies such as EBS.
However, exchequer reserves had to be used for EBS in advance of this legislation being passed so the building society could meet the higher capital requirements.
No decision has been made on where the additional €438 million required by EBS will come from as part of the EU-IMF plan to overcapitalise the banks.
The latest bailout brings the Government’s injection into the banks to more than €36 billion.
This does not include an additional €9.8 billion required by Allied Irish Banks, up to €11 billion needed at Anglo Irish Bank, €2.2 billion at Bank of Ireland, the €438 million at EBS and €100 million at ILP. Bank of Ireland and ILP plan to raise the additional capital funds by their own means.
