EBS AND Irish Nationwide missed the original target deadline of February 28th to conclude the terms of the merger between the two building societies due to “significant work pressures”, according to Irish Nationwide chief executive Gerry McGinn.
Mr McGinn told Nationwide staff in a wide-ranging internal circular last week that the society “had to commit very significant resources” to carry out a review of its commercial loan book.
Irish Nationwide would be transferring about €8.5 billion of development and commercial property loans to the National Asset Management Agency (Nama), he said.
He warned that the level of bad loans arising from the commercial loan review would be “very significant” – “indeed so significant that we require the Government to invest in the society to ensure that it remains a going concern”.
Irish Nationwide is expected to require a capital injection of up to €2 billion from the Government to replenish its reserves after selling loans to Nama at a discount and writing off other loans. EBS will need up to €400 million.
“It is hugely disappointing that we are having to make impairments on an unprecedented scale,” Mr McGinn said. “We expect to be in a position to provide the out-turn for the financial year around Easter time.”
Merger discussions with EBS had also been delayed as Irish Nationwide has had to “negotiate with Government to secure the investment of capital we need to remain in business”, he said.
As a result of these issues, only a number of preliminary meetings between the building societies on their proposed merger were held.
“I expect these discussions to continue but the timeframe is undoubtedly being affected by the significant issues which continue to absorb our senior management team,” he said.
He advised staff that protecting their employment and ensuring proper management of the loans were among his top priorities.
The preparation of the building society’s 2009 accounts and arrangements for Irish Nationwide’s annual meeting, which has been provisionally scheduled for late April, have also led to delays.
“These immediate and pressing work pressures will inevitably mean that the ongoing discussions with EBS will take some time yet.”
Irish Nationwide had been “in the vanguard” in terms of meeting Nama’s requirements, said Mr McGinn, and all deadlines set had been met by the society. He described the work on the Nama transfers as “a huge enterprise, absorbing enormous resources”.
The society had been “working hard to contain, and if possible reduce, the level of arrears” on the €2 billion residential mortgages.
The improvement in arrears means the building society can “minimise the impairments necessary” on residential mortgages.
On retaining deposits, Mr McGinn has asked two senior staff members “to remain vigilant to changes in the marketplace” and to ensure that the building society is offering competitive products.
“I know that these are uncertain times. They are uncertain times for everyone involved in the financial sector in Ireland, not just ourselves. It is important that we help our own cause as best we can,” Mr McGinn concluded his circular.
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The Irish Bank Officials’ Association (IBOA) has asked EBS building society that Irish Nationwide staff, whom it represents, be treated equally in the proposed merger of the building societies.
The union wrote to EBS chief executive Fergus Murphy on Monday asking that if any redundancies arise from the merger that they be voluntary and agreed with union representatives of staff.
The IBOA asked that employees in both societies be represented on the board of the merged entity “as a further step of addressing the culture difficulties which have created so many problems in the financial services sector”.
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