Noonan secures IL&P funding order

Minister for Finance Michael Noonan has secured a High Court order permitting an injection of €2.7 billion in public funds into Irish Life & Permanent (IL&P) by July 31st next.

The consequences for IL&P of not being recapitalised by July 31st were “potentially catastrophic” and recapitalisation was also in the State’s interests, a senior Department of Finance official said.

The court order allows for a maximum State investment of €3.8 billion, but it is hoped that will not be required and the institution will raise around €1 billion through the sale of Irish Life and a further debt buy-back exercise, the court heard.

The court was told today it had been determined that IL&P requires recapitalisation funds of €4 billion, of which €2.9 billion must be raised by July 31st. Most of that €2.9 billion - some €2.7 billion - will come from the taxpayer while €200 million has been raised by IL&P from a debt buyback exercise. A date for the raising of the remaining €1.1 billion will be set later.

The Minister’s move came after IL& P shareholders last week voted to reject public recapitalisation, which would wipe out the value of investors’ shareholdings.

However, David Barniville SC, for the Minister, told Mr Justice Brian McGovern today the order sought was necessary because there was no alternative source for the €2.7 billion sum and recapitalisation by July 31st was required under the EU/IMF programme of Support for Ireland.

Counsel said €2.3 billion will be provided by subscribing to shares in IL&P while €0.4 billion will be raised via contingent capital notes issued by IL&P.

The July 31st deadline was a requirement of the EU-IMF Programme of Support for Ireland, and the capital levels were set under Central Bank rules, which must be followed in order to be eligible for liquidity finance from the European Central Bank, the court was also told.

Mr Barniville said, as a result of the decision of the shareholders, IL&P was not consenting to the application for the order. It had been served with written notice of the Minister’s intention to seek the order and had made submissions that the Minister had considered.

The order was granted by Mr Justice McGovern under the Credit Institutions Stabilisation Act 2009. The judge said he was satisfied all the necessary requirements had been met and was also satisfied the order was a reorganisation measure for the purposes of the CIWUD (Credit Institutions Winding Up) Directive.

Any application to challenge the order has to be made within five days. In that regard, Mr Barniville said there had been correspondence from individual shareholders and two law firms representing some shareholders.

Counsel said two emails had been received last night from one shareholder - Liberal Democrat MP John Hemming.

The Minister’s move comes just days after Scotchstone Capital, a Malta-based investment firm, wrote an open letter to the Minister claiming it could recapitalise the bank by raising funds from private investors and warning it would fight any move to recapitalise using public money.

The firm also suggested IL&P requires €1.4 billion in capital, not the €3.8 billion suggested by Central Bank stress tests.