The recapitalisation of Irish banks is proving a tricky issue for finance minister Brian Lenihan, whose government has already underwritten their balance sheets at a potential cost to the taxpayer of €450bn.
No one disputes that another €12bn-plus is needed to get the banks lending again, the question is, who should provide it?
The state, already strapped for cash and deep in recession, is reluctant to get involved, but are the private equity groups now eyeing the sector the best solution?
Not according to the Irish Bank Officials’ Association, whose 20,000 members have a direct interest in the outcome.
Larry Broderick, general secretary of the IBOA, says: “Allowing private equity houses to take significant stakes in leading Irish banks would be a disaster for customers, staff, shareholders and the country.”
The minister he says should beware as private equity funds “are the real sharks of the business world”, operating on the basis of maximising short-term opportunities.
The Congress of Trade Unions – the Irish TUC – takes a similar view. It wants the main domestically owned banks nationalised and also warns against allowing investment by what it calls “vulture capitalists”.
The immediate cause of the concern is that representatives of US private equity firms and Middle Eastern sovereign wealth funds have been in talks with some of the banks on possible investment. Minister Lenihan, while offering a general assurance to critics, has been careful not to demonise those involved.
He says: “We cannot characterise foreign investment all the time as predatory or a threat, as much of Ireland’s economic success has depended on such investment. Of course, if there is private investment in the banks, I will have to ensure that the public interest is served.”
But a white knight may be emerging with an announcement by the Irish Association of Investment Managers that it is willing to sponsor a major cash injection into the banks in partnership with the government. The association, whose members oversee €260bn in investments worldwide, has hired Deutsche Bank to develop its plan.
The move, which would see private investors and government take a stake in the banks in return for their cash injection, is regarded as an attempt to pre-empt alternative recapitalisation proposals backed by private equity groups.
It was welcomed by the minister as a sign that people are willing to invest in this country. He declined to say if the government would participate in the plan.
He adds: “I have not ruled out co-investment by the state in support of private investment in the banks but the state is not committed to any particular private investor.”