Private capital may be used with ESM

Private capital could be used to contribute to bank recapitalisation alongside capital injections from the euro zone’s rescue fund under a proposal discussed by euro zone finance ministers.

The design of the European Stability Mechanism (ESM) direct recapitalisation instrument, including the possibility of attracting private capital, was discussed at yesterday’s meeting of finance ministers.

Euro group chairman Jeroen Dijsselbloem said discussion of legacy assets and retrospective recapitalisation would be considered in subsequent months.

S&P upgrades Irish rating

He added that finance ministers would discuss how best to support Ireland and Portugal in successfully exiting their programmes and fully returning to market finance at next month’s meeting. His comments came as ratings agency Standard & Poors upgraded Ireland’s outlook yesterday from negative to stable on the back of last week’s promissory note deal.

Euro zone finance ministers are expected to deliver their verdict next month on those countries’ request for an extension of certain loan maturities.

Speaking after the meeting, Mr Dijsselbloem said the euro group had been informed by Minister for Finance Michael Noonan of last week’s developments regarding Irish Bank Resolution Corporation (IBRC).

“We welcome the solution found by the Irish authorities for the replacement of the promissory notes and the winding down of IBRC,” he said. “This will lower the cost of restructuring Ireland’s financial sector, which will be positive to complete Ireland’s return to the markets.”

His comments were echoed by EU economic and monetary affairs commissioner Olli Rehn, who described last week’s deal as “a major step” for Ireland.

“This has further boosted market confidence and will certainly help to facilitate any subsequent outcome.”

Both also noted the positive assessment of Ireland contained in the ninth quarterly review of Ireland published last week by the troika of the European Union, European Central Bank and International Monetary Fund.

Speaking ahead of yesterday’s meeting, Mr Noonan said Ireland’s bid to secure ESM direct recapitalisation for AIB and Bank of Ireland was a “medium-term strategy”.

“We’re at the early stage. This is not something that is going to conclude quickly; this is a medium-term strategy but with the ground we’ve gained on the promissory note arrangement we can afford to wait for the next phase as long as the commitment that was made on 29th June last is still the commitment,” he said.

Ireland is hoping the euro zone’s rescue fund, the ESM, can be used to directly recapitalise both banks.

Cyprus bailout

Yesterday’s meeting of finance ministers also discussed the bailout of Cyprus, with Mr Dijsselbloem refusing to rule out the possibility that depositors could be affected by the deal.

While negotiations on a €17.5 billion rescue programme began late last year, disagreement has emerged about how the bailout should be funded amid concerns about Russian involvement in money-laundering in the country.

Speaking after the meeting, Cypriot finance minister Vassos Shiarly said the so-called bail-in of depositors was a “grossly exaggerated possibility” and “unlikely to happen”.

Mr Dijsselbloem confirmed yesterday that euro zone finance ministers had decided to appoint an independent firm to assess allegations of money-laundering in Cyprus. A final deal is expected to be agreed in March, after Cypriot elections.