THE EDUCATIONAL Building Society (EBS) has warned members that the Government is the only source of fresh capital, and voting against a State investment would have “material adverse consequences” on the society.
EBS has recommended to its 462,000 members that they vote for plans to issue “special investment shares” to the Government in return for an investment of €300 million to €400 million.
The society said in an information leaflet posted to members this week that the lender’s board “does not believe that it will identify any alternative source of capital”.
A vote against a State investment “could have material adverse consequences for EBS’s business, operating results, financial position and prospects”, the society said. EBS members will vote on a State investment at a special general meeting on December 18th.
Meanwhile, Irish Nationwide Building Society (INBS) said in a notice to its 200,000 members that there are “no further options” other than a Government investment of between €1.2 billion and €2 billion to “raise material levels of capital to meet the society’s requirements”. INBS will hold its special general meeting of members at the same time as EBS.
INBS said it was “likely to require shortly an initial injection of capital” to absorb “significant losses” on bad debts on its commercial property loans and that the Government was “the only available source of such investment in the current environment”.
Capital injections into EBS and INBS will facilitate a merger with formal talks already under way.
Fergus Murphy, chief executive of EBS, said he was “hopeful” a deal would be concluded before the end of February and that due diligence on INBS would begin early next year after the societies received Government aid, he said.
Ratings agency Moody’s said it was uncertain of possible changes to INBS’s debt ratings, which are under review, reflecting the likelihood that INBS will be merged into EBS, “a higher rated entity”.
“If INBS does not merger with EBS, or another entity, in the near future then it is likely that the ratings would be downgraded to non-investment grade, reflecting the higher potential for losses at the end of the two-year guarantee period [in 2010],” said Ross Abercromby, an analyst at Moody’s.
