Dublin Poised to Take Control of Bank of Ireland
CHRIS V. NICHOLSON, On Wednesday November 24, 2010, 5:28 am EST The Irish press was abuzz with reports Wednesday morning that the country's government, fresh off its request for a bailout from the European Union, would take control of Bank of Ireland, the last large Irish lender to stay outside government control thus far. The government already owns a 36 percent stake in Bank of Ireland, and The Irish Independent, the daily with the largest circulation, said that the government could act within 72 hours to take a majority stake. Likewise, the state's controlling stake in Allied Irish Bank, the other of the two large banks, may rise as high as 99.9 percent. The Irish finance ministry was not immediately available for comment, while The Bank of Ireland declined to say anything on what it called speculation, although stockbrokers in Dublin confirmed the likelihood of the takeover to DealBook. The reports surfaced after Irish bank shares took another dive on Tuesday, with Bank of Ireland sinking 0.09 euros, or 23 percent, to 0.30 euros, according to Bloomberg data. Allied Irish fell 0.08 euros, or 19.1 percent, to 0.33 euros. Both are down more than 70 percent for the year, after an even more precipitous fall off their pre-crash highs. In the last days of Ireland's property boom, in late 2006 and early 2007, Bank of Ireland regularly traded above 17 euros a share, and Allied Irish above 22 euros. At the time, they were in the business of borrowing heavily from international markets and plowing the money into dubious real estate development schemes and loose mortgage loans based during asset bubble whose deflation has effectively brought about the banks' demise. The Irish state guaranteed the deposits and liabilities of the country's six banks more than two years ago, and moved to take a stake in Anglo Irish Bank toward the end of 2008, nationalizing it the next year. Since then, it has thrown good money after bad. The Irish bad bank, NAMA, has pledged to buy 73 billion euros worth of developer loans gone sour, at a steep discount to the loans' value when made. The Irish bank bailout -- assuming a worst-case scenario of 34 billion euros for Anglo Irish -- was expected to come to 46 billion euros, the government said more than a month ago. But the additional funds reported Wednesday could bring that amount to 60 billion euros, according to Simon Carswell of The Irish Times. The bailout made Ireland's deficit soar to 32 percent of its GDP this year, and put the country on a course to make huge budget changes, having to raise 15 billion euros over the next four years to meet its European obligations. RTE, the national radio broadcaster, said Wednesday that 10 billion euros of cuts and 5 billion euros of tax hikes were expected, but the government has yet to release a detailed plan. The increased bailout and reduced budget represent a massive shift in resources away from the country's citizenry and toward the financial institutions whose reckless lending fed the cycle of boom and bust. In a historic twist, a move by the government to take control of Bank of Ireland would return to its possession the old Irish Parliament buildings, which the lender bought in 1803 to make its headquarters, after Ireland's legislative bodies were dissolved in 1801 to enter into union with Great Britain. No other building represents the entanglement of Irish government and finance today better than the parliament cum bank office. But the situation may not last long. On Tuesday, Patrick Honohan, governor of the country's central bank, said the country's lenders would be put up for sale. Wilbur Ross, the investor well-known for turning around distressed assets, told Bloomberg News on Tuesday that he was "very far along" in an offer for an Irish bank. Caveat emptor. http://finance.yahoo.com/news/...nytimes-2455534289.html?x=0&.v=1
|