THE FINANCE MINISTER Michael Noonan has said the Irish banking system will be radically restructured following the results of today’s stress tests on the country’s financial institutions.
The announcement came after stress tests revealed that four Irish banks needed a total of €24 billion in government guarantees in order to help them cope with potential losses.
Allied Irish Banks needs €13.3 billion, Bank of Ireland needs €5.2 billion, EBS needs €1.5 billion and Irish Life & Permanent (IL&P) needs €4 billion.
The Finance Minister said that the previous government’s banking guarantee of 30 September 2008 “will go down in history as the blackest day in Ireland since the Civil War broke out.”
Noonan said he will create two ‘universal pillar banks’, one of which will be Bank of Ireland and the other a merger of AIB and EBS Building Society to create a second pillar bank.
The combined operations of AIB and EBS will see their services merge over time and the new combined entity will be divided in to core and non-core divisions which will see deleveraging of €23 billion of assets by 2013.
In a further announcements, Noonan said that Irish Life & Permanent will sell off its Irish Life assurance and pension businesses with its management to produce a detailed capital plan for its future.
Bank of Ireland will be divided into core and non-core assets and it it will shed €30 billion of these assets by 2013.
Noonan added that in all cases there will be no “fire sale” of non-core assets.
The banking sector in Ireland will be significantly smaller according to Noonan and the two main pillar banks will “better serve the economy as functioning banks”.
In essence, our banks will need to be smaller, more focussed on core operations, better funded and better capitalised.
The government intends to make significant restructuring of personnel and structures in the boardrooms of the banks. Noonan said:
I fully anticipate that as a result of this exercise there will be further changes at board level in the banks focused in particular on directors whose tenure pre-dates end-September 2008.
Noonan said that banking customers and policy-holders will come under State guarantee while the restructuring process is going on.
Regarding the two other main Irish banks, Anglo Irish Bank and Irish Nationwide, Noonan said that there was no immediate need for extra capital for these two institutions.
He said there would be a further assessment of the capital requirements for these two banks in May.
He ended his Dáil statement by saying the restructuring was designed to “break the bonds with our toxic banking past” and added “let us move forward with purpose”.