Madam, - I am intrigued by the recent clamour to have fresh capital injected into Irish banks and the somewhat unreal expectations by small and medium firms that this will solve their funding shortfalls.
A larger capital base will safeguard Irish banks from the expected rise in bad debts but will not in itself lead to any significant growth in lending. This is limited mainly by their loan to deposit ratios which are currently well above European norms.
The capital injections in the UK have not greatly eased the access to credit there. UK banks operating in Ireland have not significantly increased their lending here.
Undoubtedly, when a prolonged boom ends, many inefficient and unsustainable businesses will either fail or come under severe pressure to rationalise. This can be viewed positively: it is akin to survival of the fittest and should produce a leaner, stronger economy ready to grow again.
Struggling firms may have to look for sources of finance other than bank lending. Injection of equity, sale of unproductive assets, innovative employee share schemes, to name but a few, are all alternative possibilities.
More than anything, this recession will test our management abilities and the firms which successfully negotiate these troubled times will be the ones leading the recovery when it comes. - Yours, etc,
JOHN WOODROOFE,
The Four Oaks,
Bollarney,
Wicklow.
Madam, - Has the Government learnt nothing from Eircom's experience in the hands of private equity investors and venture capitalists? It now seems to be wrapping up some of the Irish banks to facilitate a new game of "pass the parcel" using another key national resource.
Why doesn't the Government simply create a special investment vehicle to borrow the funds needs to recapitalise the banks via high-coupon preference shares and then do a public flotation of this vehicle to repay these borrowings? This would allow the banks to stay largely in Irish hands, give the Government a say over credit policies and ensure that banking strategies are aligned with the national interest rather than being dictated by the short-termism of unregulated Wall Street funds, which played a lead role in creating the current international crisis. - Yours, etc,
BRIAN FLANAGAN,
Ardmeen Park,
Blackrock,
Co Dublin.
Madam, - In response to the news of impending consolidation in Irish retail banks, forgive me for saying to the bank executives: "I told you so". In the summer, 2002 edition of Irish Banking Review I argued for consolidation as one response to the new global market order and its direct relevance to an Irish retail banking market which could be described as small by EU standards.
I further commented that there might be no room for national Irish banking firms in the new global market order. There was nothing immutable about the position of our national banks.
I continued with this theme when I was invited to address a banking symposium at the Berkeley Court Hotel on November 30th, 2004. In an interview that morning with John Murray of RTÉ I reiterated my point about the likely future of Irish banking. On radio the same morning, my successor at the Competition Authority commented that banking mergers could not be tolerated in a small market such as Ireland and Mary Harney, then Tánaiste and Minister for Enterprise, Trade and Employment, concurred.
It is easy to be wise after the event but some of us in the consultancy world keep to the same hypothesis. Let me say now that I predict there will be no indigenous Irish bank by 2012, unless there is consolidation; and until there is consolidation there will be no interest from external equity in Irish banks.
The best outcome now, sadly, is to facilitate the banks for international takeover and perhaps avoid another Eircom/Eircell disaster in the sale of national assets. - Yours, etc,
Prof PATRICK A. McNUTT,
Visiting Fellow,
Manchester Business School,
Former Chairman,
Irish Competition Authority (1996-2000),
Blackrock,
Co Dublin.