Well, Bank of Ireland has prevailed.
Minister for Finance Michael Noonan has announced this afternoon that that the so-called “Eligible Liabilities Guarantee” scheme will end for all new liabilities from midnight on 28th March 2013. The ELG scheme meant that deposits and bonds and all other money loaned to the banks whilst the ELG was in operation would have a backstop guarantee from the Government, so if the bank failed, then the Government would step in and cover 100% of what was owed to depositors, bondholders and other lenders to banks.
The ELG was provided by the Government but it made a charge for it. Last year, it took in €1,024m in ELG fees after taking in €1,236m the previous year, and guess what? Bank of Ireland which is now only 15%-owned by the Government wasn’t happy with having to hand over so much protection money, when Bank of Ireland felt that it was strong enough to attract deposits and loans without having the ELG in place.
The scheme was supposed to have continued until June 2013, so this announcement this afternoon is a bit of a surprise. It almost certainly means that Bank of Ireland has got its own way with Minister Noonan. There is no explanation today as to why the scheme has been ended earlier than previously.
But what about the other ELG banks – AIB/EBS and Permanent TSB?
The assessment on here is both of these banks are still in difficult straits with the potential for full-blown mortgage crises which threaten to create a wave of new losses. And Permanent TSB isn’t quite a “pillar bank” or at least it wasn’t one of the two “pillar banks” which the Government committed to supporting in March 2011.
So, could there be a Project Orange in the works right now in the Department of Finance to emergency liquidate PTSB, just as Project Red was in the planning pipeline since at least 12th October 2012? Remember that depositors at what was Anglo and Irish Nationwide are today nursing losses of at least €93m following the special liquidation three weeks ago.
But don’t panic. Even after the ELG is withdrawn, your deposits will still enjoy a guarantee of €100,000, and this is backstopped by the Central Bank of Ireland which has a €388m fund for such claims, and that fund is constantly replenished with an annual 0.2% levy by the Central Bank on all deposits in the State.The Department of Finance has issued some guidance notes that may reassure you further.
But if you have deposits of over €100,000, you might want to consider the health or AIB/EBS and PTSB closely, because the view on here is that neither is in the healthiest of states, and that with continuing high unemployment, the prospect of further property price declines, interest rate increases, less income as a result of the property charge, water charges, Croke Park 2 and anaemic domestic growth, both banks might be back looking for further handouts, and there is less than full support from the Government for PTSB in particular.
UPDATE (1): 26th February, 2013. PTSB has just issued a statement welcoming the Minister’s announcement this afternoon. The statement says “permanent tsb bank has welcomed the announcement today by the Minister for Finance of plans to bring the ELG scheme to an end. A spokesman for the bank said: “permanent tsb has supported calls in recent months to bring the ELG scheme to an end and we very much welcome the decision to do so that has been announced today. This is a further sign that the Irish banks – including permanent tsb – are now able to fund their ongoing activities in the market without the requirement for Government support and that’s to be welcomed by all.”
UPDATE (2): 26th February, 2013. Although PTSB has not been referred to as a pillar bank, in January 2013, the Department of Finance did issue a statement to the Sunday Business Post Jon Ihle which said “The Minister outlined the concept of Pillar Banks, being Bank of Ireland and AIB, in his speech of 31st March 2011. This concept was to strengthen these banks through recapitalisation and restructuring in order that they could play a material role in the provision of credit to the economy, as universal banks providing nationwide coverage and a full range of services to retail, SME and corporate customers. At that time the future strategic direction of Permanent TSB was less certain. Since then we have agreed a way forward for Permanent TSB with the Troika which envisages it playing an important role in the future of Irish retail banking, being a more focused retail bank bringing an element of competition to the marketplace which has consolidated significantly since 2008″ and this evening a PTSB spokesperson has said that PTSB has no issues in terms of funding its ongoing requirements in the market at competitive rates without any need for Government support and that specifically, it has the April 2013 bond redemption of €1.3bn covered.