article finacial times lex column 28 May 2011 11:01
irish taxpayers have bourne the brunt of the countrys banking colapse E70 bn hit so have shareholders.they have been wiped out at anglo irish,and dilluted to the point of emaciation at allied irish and bank of ireland.now the death cart has been summoned for shareholders at irish life and permanent wich is facing a mandatory 4bn recapitalisation of its banking division.some ILP investors have started a fightback.thats good.
the stress tests in march had ultra pessimistic assumptions about mortgage defaults and loan losses.the authorities wanted to draw a line under the banking crisis.the long term outcome,unless armagedon arives,is the bank will be overcapitalised.ILPs permanent TSB bank reported a robust core tier one capital ratio of 10.6% at the end of 2010.the group rekons the forced recapitalisation will lift the ratio to 33% by 2013,leaving ptsb with excesss capital of 1.5bn
the recapitalisation will be funded by selling ILPs life insurance division-which could be worth 2bn-and by the state.and theres the rub.the goverment is demanding almost full ownership of ILP in return.angry investors say its tantamount to expropration.the life business belongs to shareholders,and the states ILP stake should be no more than 56%,to reflect its maximum contributioin to the recapitalisation.one shareholder scotchstone capital,insists PTSB does not need such a big recapitalisation,the dissedents are pressing for a better soulution,such as giving a call option on the states stake.
the investors have a case.ILP recapitalisation looks arbitrary and should be re-examined.irelands bankink colapse was an exercise in wanton value distruction,fixing it must not do likewise.
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