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Thursday, October 2, 2008 State guarantee set to cover foreign-owned Irish banks STEPHEN COLLINS, SIMON CARSWELL and HARRY McGEE MINISTER FOR Finance Brian Lenihan would give "careful and sympathetic" consideration to a request by Ulster Bank to be included in the Government's bank guarantee scheme, he told the Dáil late last night. He also announced his intention to appoint people to the boards of banks covered by the guarantee scheme, who would represent the public interest. Replying to a debate on the committee stage of the Credit Institutions (Financial Support) Bill 2008, Mr Lenihan said the Government would consider applications to join the guarantee scheme from financial subsidiaries of foreign-owned banks with a significant high street retail presence here on a case-by-case basis. The Minister told the Dáil that the Government had received an application from Ulster Bank for inclusion in the scheme. Mr Lenihan emphasised that the Government had responsibility for the six domestic financial institutions, but other financial institutions owned by companies outside the State were the responsibility of other sovereign states. He added that he accepted the point made by Fine Gael leader Enda Kenny that some foreign-owned banks had a branch network in Ireland and were subject to Irish regulation. The Minister emphasised, however, that the Government's initial calculations on the assets and liabilities of the banks, based on figures from the National Treasury Management Agency (NTMA), referred only to the six Irish institutions. The NTMA had calculated that the liabilities of the six banks amounted to €440 billion while their assets came to €520 billion. Expanding the scheme to cover foreign-owned banks would have an impact on the calculations and would only be taken after serious consideration, the Minister said. Shortly before 11pm last night, a Labour motion, supported by Sinn Féin, calling for the publication of the guarantee scheme before the Bill comes into effect was defeated by a substantial majority after Fine Gael abstained. Mr Kenny welcomed the Minister's decision to appoint independent monitors to bank boards covered by the guarantee scheme and said the move had been proposed by his party. Fine Gael deputy leader Richard Bruton welcomed the Minister's decision to address the issue of the banks based in Ireland that are not covered by the guarantee scheme. "This move will hopefully help to deal with the equity, fairness and competition issues raised by Fine Gael relating to this matter. It is also hoped that this move will help remove one of the potential barriers to the operation of the scheme as outlined," he said. However, Labour Party finance spokeswoman Joan Burton said the move threatened to open up a financial Pandora's box and increase further the potential exposure of the Irish taxpayer. "We still do not know the full extent of the financial exposure from the original proposal, but this move will clearly extend it significantly. When we were first told of the proposed scheme on Tuesday morning, we were assured that it would be limited to the six banks named in the Government statement. Where will it now end?" Earlier, Ulster Bank Group, the second-largest Irish mortgage lender, said the bank intends "to apply to be included in the scheme", adding that "any application is expected to be successful". Bank of Scotland (Ireland)/Halifax, which is owned by UK bank Lloyds TSB-HBOS, has already applied to be covered. Danish-owned NIB and Belgian-owned IIB have also expressed concerns about being excluded from the guarantee. The excluded banks mounted vigorous lobbying campaigns with the Government, the department, the Irish Financial Services Regulatory Authority and the Central Bank. The regulator has been contacted by its UK counterpart, the Financial Services Authority, over the guarantee. Officials representing EU competition commissioner Neelie Kroes were in contact with Ulster Bank, Bank of Scotland (Ireland) and their UK parent banks to examine the effect of the State guarantee on the competition in the banking sector. The four guaranteed banks - AIB, Bank of Ireland, Anglo Irish Bank and Irish Life Permanent (ILP) - all recorded slower share gains yesterday, with only AIB recovering to its opening share price on Monday when bank stocks plummeted. ILP rose the most, climbing 13.6 per cent. Chief executive Denis Casey said the banks could borrow more cheaply with the guarantee, which had opened up the "oxygen supply" of funding to the Irish banks again. The guaranteed banks received inflows of deposits from the UK, with one Irish bank receiving a single corporate deposit of €500 million after the guarantee was announced. © 2008 The Irish Times
