A PRIVATE equity consortium led by Dublin firm Cardinal has increased the upfront cash injection it is willing to invest in EBS building society to a sum believed to be in excess of €600 million as final bids for the lender closed.
Cardinal, which is backed by the billionaire New York investor Wilbur Ross and US private equity firm Carlyle, and Irish Life Permanent submitted final bids for the State-owned lender by yesterday’s deadline.
Under a previous offer, Cardinal had offered to inject up to €525 million into EBS initially to meet earlier capital requirements set by the Financial Regulator.
A spokesman for the National Treasury Management Agency (NTMA), which is handling the sale process, confirmed the submission of bids but added that it would be difficult to say how long it would take to select a preferred bidder. The NTMA expressed its frustration earlier this month that the process was taking longer than expected due to the involvement of the European Commission, which must sign off on the sale under EU competition rules.
Irish Life Permanent and Cardinal declined last night to comment on their final bids. Their proposals for EBS are conditional on any further potential requirements at EBS arising from the Central Bank’s capital and liquidity stress tests – under the so-called PCAR and PLAR exercises – to be completed by the end of March.
The Government has injected €875 million into EBS and taken control of the lender, which requires a further €438 million by the end of next month under the EU-IMF plan to recapitalise the banks to higher international standards.
Under Irish Life Permanent’s proposal, the Government would have to inject the additional capital. However, it is believed to have played up the fact that the State would be taking a minority stake in a larger merged bank comprising both EBS and its banking division, Permanent TSB.
The company is also offering warrants, thought to amount to about 10 per cent of its stock, to the Government as a sweetener. Shares in Irish Life, the company’s profitable life and pensions business, are expected to rally once it off-loads its loss-making banking division.
Irish Life and Permanent must raise €925 million by tapping shareholders in a rights issue and through internal means such as securitisation deals and a debt exchange to recapitalise Permanent TSB to a level where it can operate on a standalone basis before merging the division with EBS.
The Government would avoid pumping further cash into EBS under Cardinal’s proposal. The consortium is also offering to cover any further potential losses at EBS up to about €450 million and to share any additional losses beyond that, with the Government taking 70 per cent and Cardinal 30 per cent. The consortium is also offering the Government 10 per cent warrants in EBS to share any gains from a return to profitability by the building society over time.
The acquisition of EBS is seen as the first step in the broader consolidation in the banking sector, possibly into a so-called “third force” to compete with the two main banks, Bank of Ireland and Allied Irish Banks.
Irish Life Permanent and Cardinal have expressed interest in making further acquisitions as the sector undergoes radical restructuring under the EU-IMF plan to repair the banks and wean them off Government support.
