EU COMPETITION commissioner Joaquin Almunia has opened an in-depth inquiry into the State’s support for the nationalised Educational Building Society (EBS), which received a pledge of € 875 million from the Government in June.
Mr Almunia doubts whether the distortions of competition caused by the State’s financial aid for the institution are adequately addressed in a restructuring plan that was submitted five months ago.
“Ireland has taken decisive action to strengthen the EBS,” the commissioner said. “The amount of aid received by the EBS, however, justifies that we give interested third parties the opportunity to comment on whether distortions of competition are adequately addressed.”
A further factor is that the situation of the EBS has changed since the restructuring was submitted as a result of the Government’s decision to sell the former building society. Four bidders are in contention: Irish Life Permanent; a US buyout firm JC Flowers; British private equity firm Doughty Hanson; and a group led by Dublin investment firm Cardinal.
“After a preliminary assessment of the plan, the commission has concerns whether the distortions of competition caused by the aid to the EBS are sufficiently addressed by the measures proposed in this plan,” said a statement from the commission.
“In addition, the commission requires more information to underpin the claim that the EBS will not need further State aid and will restore its viability on the basis of the current plan.”
Saying the investigation will proceed quickly, Mr Almunia’s spokeswoman declined to elaborate on the specific nature of the commissioner’s concerns.
The Government’s rescue of the EBS follows a disastrous foray into commercial real estate lending in 2005, when Ireland’s property bubble was approaching its height.
The investigation comes amid scrutiny of restructuring plans from other institutions, Anglo Irish Bank and AIB among them. A final version of the plan to wind down Anglo by dividing its business into a “funding” and “asset recovery” banks is still awaited in Brussels but is expected from Dublin within days.
When granting preliminary approval for the State’s capital injection into the EBS last June, Mr Almunia said the restructuring plan should fulfil the requirement on the institution to return to viability. The plan should also include burden-sharing and “own contribution” measures and provisions to limit the distortion of competition in light of the State aid.
As he temporarily approved the capital injection, Mr Almunia said in a letter to Minister for Foreign Affairs Micheál Martin that the commission had come to the conclusion that the EBS was not fundamentally sound and was in a particularly distressed financial situation.
The commission said a restructuring plan must reflect the level of distress of the EBS, the size of the State recapitalisation and the absence of return for the State. It also called for “sufficient measures” to limit the negative spill-over effects for other competitors in the Irish banking sector.
So far, the Government has injected €350 million into the EBS, and has pledged a further €440 million to allow the building society to fulfil its capital requirement. However, any buyer would be expected to provide fresh capital.
The commission said the opening of the in-depth investigation did not prejudge its final outcome.
