Brian Lenihan Jnr (Dublin West, Fianna Fail)

This is a complex process but I am confident that by the end of the summer we will have a clear plan for the future of the bank approved by the Commission. The bank will give more details on the likely costs of various options for its future when it publishes its results. The sums required to rescue the bank are enormous but the costs of winding it down are even greater. The current bank strategy of seeking to devise a way to realise value for the taxpayer from the remains of the old bank means the State could at least get some return in time, recouping some of its assistance. I assure the House that the bank shares my overriding objective to maximise the potential return for the taxpayer in recognition of the State support.

Traditionally, building societies have played a vital role in providing residential mortgages in Ireland. In recent years the Educational Building Society, EBS and, in particular, Irish Nationwide Building Society, INBS, became involved in non-residential lending. In the case of INBS such lending became its primary focus, comprising approximately 80% of its lending business. As a result it has incurred significant losses on speculative lending for land and development and commercial investment loans. In the case of INBS, approximately €9 billion will have to transfer to NAMA while in the case of EBS approximately €1 billion will transfer.

Both societies have passed resolutions allowing them to issue new special investment shares to the State in return for its support. Both institutions have recently been subject to the Regulator's capital assessment process to determine their capital needs. Irish Nationwide Building Society, INBS, will transfer €670 million of assets to NAMA in the first tranche, which represents 7% of its €9 billion NAMA assets. NAMA has confirmed that it will buy the loans transferred in the first tranche at an average discount of 58%. Taking account of this and his broader assessment of the building society, the Regulator has determined that INBS will need an injection of €2.6 billion to remain compliant with its current regulatory capital requirements. This is a very large bill for the taxpayer but as in the case of Anglo Irish Bank, it is the least costly solution.

It is important to highlight that this level of capital support is required to maintain the institution's financial position in light of the large losses incurred on its loan portfolio. Without this capital injection, the taxpayer would have to shoulder the significant and immediate costs in meeting the deposits, bondholders and liabilities due to the European Central Bank. I intend to inject the necessary capital through a combination of €100 million in special investment shares in the society and a Promissory Note for €2.6 billion issued to the society, giving the society a small buffer.

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