21 November 2008

Speculations fly high after Lenihan's Bank Talks

Bank of Ireland has today confirmed that it has been "approached by a number of parties interested in investing in the bank".

This news comes after reports that a major consolidation of Irish banks has emerged as a possible solution to the current crisis.

Last night RTÉ News reported that talks between Minister for Finance Brian Lenihan and bank chiefs had led to the possibility of a radical overhaul of the Irish bank system. (see also yesterday's entry on this subject)
This led to speculations about what shape this would take, and whether foreign or private equity investors would be involved.

Bank of Ireland shares, which had already climbed this morning, were up almost 25% at € 1.26 just after the statement.

Meanwhile the Group Chief Executive of Allied Irish Bank (AIB) has declined to comment at all on the situation.
Arriving at a posh function in Dublin, Eugene Sheehy (right) said that "shareholders read what they read, but we [the bankers] have no comment to make".
It is really mind-boggling how smug and arrogant Sheehy still is, after having lost 95% of his company's value since he took charge of it in 2005 and having to go now to the State and to us - the taxpayers - cap in hand...

Asked if he could see a situation where there would be only two large banks operating in the Irish market, he responded that was speculation.
Which, of course, it is, cooked up by some financial journalists in Dublin who pretend they can read the mind of Brian Lenihan.

Yesterday's talks involved a series of meetings at Farmleigh (the government's official 'guest house' in the Phoenix Park in Dublin) between Lenihan and senior executives from the financial institutions covered under the State guarantee scheme. (see yesterday's entry)

Since the guarantee was given in September, the Minister for Finance has the power to force mergers between financial institutions. This is one of the concessions the troubled banks had to make before the State was willing to cover them.

After the meetings some participants 'believed only Bank of Ireland and AIB would remain after the shake-up', but there has been no comment on the content of the meetings.

Brian Lenihan (left) said that yesterday's meetings were "focused on ensuring there would be adequate credit for Irish businesses".

The suggestion of a major wave of consolidation would also have to be linked with fresh capital for the banks.

There is, however, still no clear picture of how a final deal would be put together, or how long it would take.

I suggest that the nervous crowd of Dublin's financial journalists stop speculating and second-guessing other people, shut their laptops for a couple of days, relax and have a few pints. As the pressure of the world markets weighs heavily on our banks, Brian Lenihan will have to come up with a solution soon. He knows that, the banks know it, and we all know it.

And when he has made his decision - which is his, and his alone by the power of his office - then we can start analysing and commentating. I hope Lenihan will do a better job with the banks than he has done with the 2009 Budget. And personally I also hope that we will in the end have more than just two banks left in this country. I have never trusted the Bank of Ireland, nor the AIB, and never was a customer of theirs. And if these two - as some people suggest - would remain alone in the field of financial services, we all would be forced to do business with them. I would not feel comfortable with that at all.

In fact, mergers and amalgamations that create ever larger banks are in my opinion not the answer to the current financial crisis. The larger a bank is, the more dominant and arrogant it tends to be, and the more it will also be enticed to participate in the massive internatinal gambling that brought all the big western banks into the trouble they - and subsequently we all - are in now.

I would go in the opposite direction and break up the largest banks and create a number of new small regional banks, whose regulations would limit them to traditional banking activities and ban them from participating in the international speculation and gambling operations. They should be staffed by local people and have an actively positive approach towards small and medium-sized businesses, as well as to idividual customers.
This could and would restore the confidence and goodwill the whole Irish banking sector has lost over recent months, and would also stabilise and stimulate our ailing economy.

The Emerald Islander

1 comment:

Blogger said...

eToro is the #1 forex trading platform for novice and full-time traders.

Post a Comment