THE RACE to take over the Educational Building Society (EBS) has narrowed to two bidders – Irish Life Permanent and a private equity consortium led by Dublin-based Cardinal Capital Group.
The shortlist was announced by Minister for Finance Brian Lenihan, who said the sale process had moved to its “final stage”.
Two other firms, US buyout firm JC Flowers, led by former Goldman Sachs executive Chris Flowers, and the UK private equity firm Doughty Hanson, owner of TV3, were among initial bidders.
“All bids submitted have been compared and assessed equally based on a range of criteria including value for the taxpayer, structure and deliverability,” said the Department of Finance.
Irish Life Permanent and the Cardinal consortium would be asked to prepare final bids over the coming weeks, the department said. Sources close to the sales process said they were hopeful that a buyer would be selected before Christmas and the transaction concluded early next year.
The Cardinal consortium is led by Dublin businessmen Nick Corcoran and Nigel McDermott and comprises the US private equity giant Carlyle and WL Ross, the New York company led by billionaire investor Wilbur Ross.
EBS must raise €785 million this year to meet new capital rules set by the Financial Regulator to cover losses on the sale of €1 billion in loans to the National Asset Management Agency. The Government has taken control of EBS and committed €350 million in capital to the lender.
Mr Lenihan said the Government would commit the remaining €435 million required at EBS if it was not provided by a new buyer.
Irish Life Permanent’s offer centres on merging its banking division Permanent TSB with EBS after raising €925 million, mostly from a rights issue, to fund the division on a standalone basis.
A merger would lead to the company sharing ownership with the Government in the new bank. This would involve the Government injecting the remaining €435 million capital shortfall at EBS giving it either a half or minority share in the merged bank, which would be Ireland’s largest mortgage lender by some distance. The Cardinal consortium is understood to have asked the Government for assurances that it will help bear any future exceptional losses that could emerge at EBS.
However, unlike Irish Life Permanent, the consortium would be able to provide the initial up-front capital required by the lender, reducing the cost of the Government’s bank bailouts.
A sale to Cardinal would also signal to international markets that the beleaguered Irish banking sector can attract overseas capital, though a rights issue by Irish Life Permanent would also draw on capital from foreign investors.
EBS required a Government bailout after incurring heavy losses following a move into development lending late in the property boom.
Just under 20 per cent of the building society’s mortgages on its €16 billion loan book are loss-making tracker loans, compared with more than 50 per cent at Irish Life Permanent.
