IRISH LIFE Permanent (ILP) has privately signalled that it may take advantage of any possible involvement in an enlarged banking group formed with the two smallest domestic lenders by growing its stake if the economy recovers over three to five years.
The company indicated to investors recently that offloading Permanent TSB into a group with EBS and Irish Nationwide building societies may allow it to grow its interest in the group to a majority stake over the medium term.
The strategy is contingent on an economic recovery over that time, according to sources with knowledge of ILP’s strategic plans.
The enlarged group, the so-called “third force” in domestic banking, rivalling AIB and Bank of Ireland, would have the largest share of the mortgage market, putting it in a strong position when economic recovery begins.
ILP is expected to take a stake of 40 to 45 per cent in the enlarged group, with the Government holding a similar-sized stake.
The former members of EBS and Irish Nationwide would likely hold the remainder. Bank of Scotland (Ireland) has also signalled an interest in participating. The Government may seek to reduce its stake over time, enabling ILP to grow its share in the new group.
The Government introduced proposals last week that would give it the power to take a “special share” in a building society in return for capital investment.
This has moved the creation of an enlarged banking group up the Government’s agenda as State officials prepare to recapitalise the two building societies following the transfer of loans into Nama.
The Government plans to buy loans of €8.3 billion from Irish Nationwide, while EBS will transfer loans of €800 million into the agency. EBS said it will need about €300 million in State capital, while Irish Nationwide is estimated to need at least €1 billion.
A capital injection of €500 million into Permanent TSB by ILP may also be necessary.
ILP has applied to the High Court to change its corporate structure, creating a new holding company and facilitating the splitting of Permanent TSB from Irish Life. The company is expected to set a date for an egm in mid-December to seek shareholder approval for the restructuring. However, it must first seek court approval for an earlier shareholder meeting and the court’s assessment of how ILP’s capital reserves should be treated.
