THE INVESTMENT subsidiaries of AIB, Irish Life Permanent and Bank of Ireland and a number of other Irish and international institutions are developing a plan to recapitalise the domestic banking system as co-investors with the State.
The proposal, tabled to Minister for Finance Brian Lenihan in talks yesterday, could see them invest in excess of €2 billion in funds they manage for clients into the six institutions covered by the State guarantee scheme: AIB, Bank of Ireland, Irish Life Permanent, Anglo Irish Bank, the Educational Building Society and Irish Nationwide Building Society.
An equal amount, if not more, would be required from the Government or a Government body such as the National Pension Reserve Fund.
The possibility of investment by private individuals and companies is also on the table.
The manoeuvre raises the clear possibility that some of the institutions concerned would be recapitalised, at least in part, with funds managed by their own subsidiaries.
Strict rules governing investments of that nature would have to be overcome in any such case.
The expression of interest in the recapitalisation plan, made public last night by the Irish Association of Investment Managers (IAIM), opens up the potential for a battle with a private equity consortium that has been engaged in discussions with Bank of Ireland and Irish Life Permanent about possible investments.
The interest of the Irish-led Mallabraca consortium - which comprises US private equity investors JC Flowers, Carlyle Group and two Middle East funds - has met resistance within the banks themselves and from Opposition politicians and trade unionists who fear significant job losses.
Mallabraca's representative had no comment on the proposal from the Irish institutions.
IAIM chief Frank O'Dwyer declined last night to name the institutions involved in the approach, but said "clearly the association would not act as a conduit for institutions who weren't of the substance or the integrity required".
In discussions with the Government, those involved were said to have stressed that their interest was in a long-term investment in the financial sector.
The extent to which the organisations concerned are willing to go along with a consolidation of the guaranteed banks and building societies as the price of Government co-investment was unclear last night.
The intervention by the IAIM comes ahead of meetings tomorrow between Mr Lenihan and the chiefs of the institutions covered by the guarantee.
Mr Lenihan, who believes a private move on the banks need not necessarily be a threat, has said State investment in the sector was a "last resort". His spokesman declined last night to comment on the approach from the IAIM.
"A number of investment institutions familiar with the Irish market believe that the process of recapitalising the Irish banks offers an investment opportunity and returns which are attractive to them and their clients," the IAIM statement said.
"It is proposed that institutions which wish to be involved would co-invest with the State in the raising of new Tier 1 capital [cash reserves set aside by a bank to absorb unforeseen losses] for Irish-listed banks.
"A number of domestic and overseas institutions have indicated their support for the initiative. Other overseas institutions will be contacted over the coming days."
The statement also said that the institutions have asked the IAIM to determine the process through which they may discuss, with the Government, progressing this expression of interest.
"The proposal would involve large pension funds and could also facilitate individual investors."
Mr O'Dwyer said he had been discussing the proposal with the IAIM's sister organisations overseas.
