• About Us
• Campus Life
• Rankings and Accreditation
• Support Smurfit
• News
  • Faculty Views
  • News archive
  • MBA Diary
• Events Calendar
• Multimedia Centre
• Photo Gallery

Dr. Elaine Hutson comments on nationalisation of Irish Banks

Date: 07 May 2009

Publication: Sunday Independent, Short View

Author: Elaine Hutson

Last week, Finance Minister Brian Lenihan appeared on the TV news insisting that the nationalisation of the Irish banks was “…very much a last option”.

This was because “…the key issue for the Irish banks is to raise funds abroad…and their presence in the marketplace is very important in order that they do raise funds”.

This is odd.  He can’t be referring to debt finance, because it is reasonable to assume that fully nationalised banks would have uninterrupted access to international bond markets and the interbank market.  Anglo Irish – in full government ownership since mid-January – has managed it.

The minister must be referring to equity finance.  But what is the likelihood that equity from private investors will be forthcoming?  The reader might remember that the €3.5bn capital injections for AIB and BoI followed the abandonment of an earlier recapitalisation plan in which the Government would contribute €2bn to each, and underwrite private equity raisings of €1bn.  It became apparent early in the new year, as bank representatives returned from investor roadshows in the US with their tails between their legs, that there was no appetite for new Irish bank equity.

Given the uncertainty surrounding the medium-term prospects for Ireland and its banks, it’s hard to believe that investors will have changed their minds on this in the past four months.  Perhaps the minister and his advisers believe that the announcement of Nama, combined with the reasonably buoyant mood that we now see in stock markets around the world, will lure investors into buying fresh equity in Irish banks.

Let’s hope so.  Given that the Government already has a 25 per cent stake in BoI and will soon have a similar stake in AIB, and that Nama plans involve the likelihood of further government equity stakes, nationalisation is otherwise inevitable.

Dr. Elaine Hutson lectures in Banking and Finance at UCD Michael Smurfit Graduate Business School.