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AIB warns of fallout from Anglo debacle
Sunday, February 15, 2009 By David Clerkin, Markets Correspondent
Major overseas investors will be more hostile to Irish banks following last week’s fresh controversy involving Irish Life & Permanent (IL&P) and Anglo Irish Bank, according to Eugene Sheehy, chief executive of AIB.

Speaking to The Sunday Business Post following the government’s €7 billion recapitalisation of AIB and Bank of Ireland last week, Sheehy said news of the dealings between IL&P and Anglo had made last week ‘‘a very difficult week for the industry and the perception of the industry’’. ‘‘Everyone in the industry is shocked and disappointed at what’s happened,” he said.

Sheehy said AIB was prepared for tough questions from institutional investors following the controversy. ‘‘We can anticipate we’re going to be asked very fundamental questions that we weren’t asked in the past, but we can answer them,” he said.

Asked whether AIB had considered moves similar to IL&P’s to prop up Anglo’s balance sheet, Sheehy said: ‘‘Absolutely not. We clearly don’t behave like that.”

On last week’s recapitalisation initiative, Sheehy said the concept of a so-called ‘‘bad bank’’ to take on bad loans and help clean up balance sheets was still worth exploring. ‘‘It wasn’t practical to include it at this stage,” he said. ‘‘I think the concept has merits, but . . . it requires a huge amount of data, due diligence and stress-testing. It also requires time. We need to see how (asset) valuations pan out. The concept has defied regulators and central banks in every country in the western world.”

Meanwhile, the government has begun discussions with Irish Nationwide Building Society, EBS and IL&P about their respective capital requirements. The first phase of the recapitalisation dealt with Anglo Irish, AIB and Bank of Ireland, and discussions with the two building societies, EBS and Irish Nationwide, have been on a back burner until recently.

Brian Lenihan, the Minister for Finance, confirmed that government talks had begun with the building societies last week in announcing details of the AIB and Bank of Ireland recapitalisation. The discussions take issues EBS and Irish Nationwide may face in relation to the extension of the state guarantee scheme.

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