Tuesday, February 10, 2009

Bruton loses the plot - proposes illegal bank split.

Richard Bruton’s proposal on Morning Ireland is clearly bonkers and almost certainly illegal.

He proposes that AIB & BOI each be split into two parts – a “new” bank with all the deposits and the loans which can be assessed as having value, split off from the “old” bank which would contain all the bad and doubtful lending. The latter would no longer actively operate as a bank, its task would be to manage down its loan book in order to achieve the best possible level of recovery. Almost inevitably, a fairly high proportion of those loans would ultimately have to be written off.

However, part of Bruton’s stated rationale was that there’s c. €25bn in bonds issued by AIB & BOI which are not covered by the existing Govt guarantee and responsibility for repayment of these could be left with the “old” asset-stripped bank.

This idea that the assets of AIB and BOI could be split into “good” & “bad”, with a specific objective of leaving holders of €25bn in bonds, issued by those banks, without recourse to the good assets would undoubtedly be rejected in any court of law in Ireland or Europe.

It’s like Pat Kenny transferring all his assets to Cathy Kenny and then calling his bank manager to say “hey, remember that €2m you lent me to buy a quarry? Well come and sue me for it, but you’ll get nothing ‘cos I’ve no assets. Even the quarry is in the wife’s name.” The transfer of his assets would be deemed illegal by the courts and would be reversed.

Not only would Bruton’s proposal be deemed illegal, the mere act of the Govt even making the proposal would also tell international markets that investing in any Irish company is not for the faint hearted. The message would be that we have a cowboy Govt., no-one would want to do business in/with Ireland.

It might deter US multinationals from establishing, expanding or even maintaining operations in Ireland. Richard Bruton’s proposal would constitute nothing short of corporate fraud perpetrated by a sovereign Govt..

Is that the message he wishes to convey?

Footnote: I've emailed this to Richard Bruton.

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