State faces €1.1bn bill to compensate depositors

The State faces a bill of up to €1.1 billion for compensating the businesses that have cash on deposit with the Irish Bank Resolution Corporation (IBRC).

As the bank is being wound up, its depositors will be compensated through two State-backed safety nets, the Deposit Guarantee Scheme (DGS) and the Eligible Liabilities Guarantee (ELG).

Compensating depositors

The Department of Finance yesterday estimated that the total bill for compensating depositors will be between €900 million and €1.1 billion.

Most of the bank’s depositors are businesses. Their money is guaranteed by the ELG, which is managed by the National Treasury Management Agency (NTMA) and funded by the exchequer.

The agency confirmed yesterday that much of the money due will come from the ELG. The arrangement means that taxpayers will fund most of the compensation paid to IBRC depositors.

Company accounts show that the businesses that depended on IBRC for their banking services in Ireland, either wholly or in part, included the jewellers Fields, hotel group Jurys Inn, estate agent Sherry FitzGerald, airline Cityjet and Hickey’s Pharmacies.

Private hospital Galway Clinic, which is 40 per cent owned by beef baron Larry Goodman and his family, used IBRC.

Service station group Topaz, whose shareholders include businessman Denis O’Brien, also banked with IBRC, as did its rival, Applegreen.

During 2011, the majority of IBRC’s deposits were moved to AIB and Permanent TSB. However, business customers, who had a lending relationship with the bank, have kept deposits with the bank as security on these loans.

In some cases, the liquidators Kieran Wallace and Eamonn Richardson, will be able deduct money due against the companies’ loans from the amounts that they have on deposit. This will apply only where the formal agreement between the bank and the client allows it.

The ELG is specifically designed to compensate larger businesses and clients who have over €100,000 on deposit. Organisations due payment from this fund have to apply to the NTMA for the cash.

Guarantee scheme

The Deposit Guarantee Scheme, which is funded by the finance institutions themselves and administered by the Central Bank, protects personal account holders up to a maximum of €100,000 per individual, and small businesses.

Payments due to anyone confirmed to be entitled to payment under this scheme will be made automatically within 20 days of the liquidators’ appointment.

Formal claim

Minister for Finance Michael Noonan will be able to make a formal claim to the liquidators for any money paid out under that scheme. It was not clear yesterday if this will apply to the ELG.

IBRC did little or no personal bank business. However, the department pointed out yesterday that borrowers have to continue making repayments against any loans, mortgages or other liabilities due to the institution.

The Department of Finance also indicated yesterday that there is a risk that some of the bank’s creditors will lose out.

According to a document released by the department, there is no guarantee that unsecured creditors, a group likely to be mainly made up of businesses that supplied goods and services to the bank, will be paid the full amounts due to them. The document states: “It is unclear whether IBRC will have sufficient assets to repay unsecured creditors in whole or on part”. However, it adds that the liquidators will have the power to come to separate arrangements with any creditor considered crucial to maintaining value or providing services considered vital to the bank’s day-to-day operations.