INTERNATIONAL FINANCIAL CRISIS:IRELAND WILL capitalise on any moves by euro-zone governments to use the European Financial Stability Fund to shore up their banks, according to Government sources.
The possibility of widespread recapitalisation of euro-zone banks was pulled into focus yesterday as fears of a default by Greece intensified. France’s top market regulator said 15 to 20 banks needed extra capital, although no French ones “at this stage”. It was reported yesterday that BNP Paribas is attempting to raise money in Qatar.
France’s banks are particularly heavily exposed to Greek government debt and would have to absorb substantial losses in the event of a default. Shares in BNP and the two other large French banks, Société Générale and Crédit Agricole, have slumped by more than 50 per cent over the past three months as Europe’s sovereign debt crisis intensified.
Their shares rallied yesterday on speculation that the French government will take steps to bolster their capital and might seek to raise funds from the EFSF,
“We just want to make sure that if any additional measures develop to deal with the crisis, that they work to Ireland’s benefit,” an Irish official said.
A default by Greece is now looking increasingly likely with US bank Citi warning yesterday that “we now expect a substantial and probably coercive debt restructuring of the Greek sovereign by the end of 2012 at the latest and likely much sooner”.
The bank’s European economics team warned yesterday that lower global growth and Greece’s non-compliance with the terms of its bailout, combined with increasing opposition in countries such as Germany to further bailouts, made a default likely by the spring of 2012 or even December this year. Defaults in Ireland and Portugal would soon follow “mainly because of political contagion”, according to the bank.
“In order to reduce the debt-to-GDP levels to 60 per cent (80 per cent) in 2012, it would require debt haircuts (ex-IMF) of 67 per cent (54 per cent) in Greece and about 53 per cent (34 per cent) in Portugal and Ireland,” they added.
Minister for Finance Michael Noonan will offer a more positive view of Ireland’s prospects at the World Bank/IMF annual meetings in Washington which end tomorrow.
Mr Noonan, who arrived in Washington on Thursday evening, will tell IMF officials and senior international bankers, who have gathered for a parallel meeting of the Institute of International Finance, that Ireland “has a plan, is on target, and is actually surpassing some goals”, an Irish official said. “We are working quietly,” the official said. “The middle of a crisis is the time you want to be out of the news. We are just keeping in contact,” he said.
Mr Noonan will point out that Bank of Ireland raised €1.7 billion in risk equity this summer, and that Irish banks broke their reliance on the Central Bank by raising €4.5 billion in term financing on the markets, using residential mortgage-backed securities as collateral.
He will also highlight statistics released on Thursday showing that Irish GDP grew 1.6 per cent in the second quarter.
The funds raised by Bank of Ireland are particularly significant, the official said. “It’s really positive that the € 1.7 billion came from private sector investment, because people took out their own cash and invested it. We want to get that across, as well as the fact that our banks are actually accessing money markets.”
Bank of Ireland shareholders invested €600 million, and five large North American investment funds invested €1.123 million in risk equity, without State guarantees.
