Inside The World Of Business

Lenihan calls shots  at shotgun wedding

AFTER MONTHS of speculation and considerable talk behind hands, the much-anticipated process leading to a merger of the State’s two mutuals, EBS and Irish Nationwide, has begun.

A merger is perhaps putting it a bit too equitably. Irish Nationwide, the weakest domestic lender after Anglo Irish Bank, is more the out-of-pocket bride and the Government the worried father eager to find a home for an offspring led astray in the heady days of property lending and land speculation.

Given that Irish Nationwide will be left a shadow of its former self when four-fifths of the society’s loans move to the National Asset Management Agency (Nama), the marriage will see EBS absorb the €2 billion rump of its rival’s loan book on to its own €17 billion book.

EBS says it will need a capital handout of €300 million from the Government and that the State may have to inject up to €100 million as dowry to bless the union.

EBS chief executive Fergus Murphy says he sees opportunities for both institutions to be part of the senior management structure of any new organisation created.

However, given that the State could end up with as much as 60 per cent of the larger entity, Minister for Finance Brian Lenihan will be calling the shots on who will run the bigger mutual.

When it comes to fixing the banks, the Government is ticking the boxes in order of importance.

First, there was the guarantee of the domestic system, then the nationalisation of the weakest link – Anglo Irish Bank – and the €7 billion recapitalisation of the big two banks, AIB and Bank of Ireland.

Nama will take out the sector’s most toxic assets, paving the way for the Government to hammer together lenders to strengthen the system for the future.

Irish Life Permanent appears keen for its loss-making banking division, Permanent TSB, to form a part of the widely discussed third banking force with the mutuals and is understood to be pushing an open door with the Government. But the bank will have to sit off stage until the Nama show kicks off in earnest, and EBS and Irish Nationwide begin to perform their courting dance this week.

Economy smarting

IT IS almost a year since the Government announced plans to attract €200 million in venture capital money into Ireland as part of its Smart Economy initiative.

The initiative – modelled on Israel’s successful Yozma fund – involves three US-based venture capital companies and will receive Government funding of €250 million over 10 years. The investors also get favourable taxation and intellectual property treatment.

The target is to build on the current base of technology companies and attract new ones.

To date no investments have been made under the initiative – or at least made public.

An explanation for this – in part at least – came yesterday with the publication of the rather ponderously titled Global Venture Capital and Private Equity Country Attractiveness Index.

Ireland has slipped five places in this global beauty parade, with the depth of the Irish recession and the time that it will take for the economy to recover given as the main reasons. There is little cause for optimism that things will improve soon. Yesterday’s manufacturing data only served to confirm that Ireland’s exit from recession will lag significantly behind the large euro-zone economies.

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