This was a polite way of pressuring the
But the minister could not be seen to be singling out the BoC nor could he have issued direct orders, which was why he drew parallels with the example of the government. Technically speaking these are two completely different cases. The government is in an assistance programme and has put public finances in order, whereas the non-performing loans (NPLs) of the banks are close to 50 per cent and on an upward path. There is uncertainty over their ability to recover a substantial part of these and after last year's bail-in the banks are having difficulty keeping deposits, let alone being able to borrow funds.
The share issue the minister was referring to is quite different. While it would substantially improve the capitalisation of the BoC, it would also change the ownership regime, diluting the shareholding of the existing shareholders. This would be grossly unfair because the bank took almost half their uninsured deposits in the bail-in and gave them shares in exchange. And now if new capital is issued, it would dilute the value of the existing shares, thus penalising shareholders a second time.
This is why many members of the BoC board are opposed to the idea of a new share issue, which the CEO seemed to think is the only way forward. The Governor of the
The truth is that the board does not have a choice. An injection of new capital would help the bank get through the planned stress tests this autumn, put it on a healthier footing and also boost confidence. If foreign investors cover the issue, which will be in the region of €800 million, it would be a big vote of confidence in the BoC that could help its recovery. This is what the members of the board should bear in mind in taking their decision tomorrow.
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