DUBLIN (Reuters) - The Irish government will invest 5.5 billion euros (5.2 billion pounds) in the country’s three main lenders, taking majority control of Anglo Irish Bank after a loan scandal there rocked an already beleaguered industry.
Investors have been waiting for months for a bailout plan to match schemes in other countries, but pressure on the government intensified this week after Anglo Irish revealed its chairman had kept shareholders in the dark about 87 million euros worth of loans he had received from the lender.
Its shares slumped to a record low of 19 euro cents and the financial regulator has launched a probe into directors’ loans at all major Irish banks. For details, see
“This is a new beginning. We have to have proper lending, responsible lending, lending for the real needs of the economy,” Finance Minister Brian Lenihan said on Sunday.
Dublin will invest 2 billion euros each in market leaders Bank of Ireland and Allied Irish Banks via preference shares giving 25 percent voting rights over what the government described as “key issues.”
The government will be able to intervene in areas such as appointing directors, changes in capital and ownership changes. The banks have also signed up to a credit package designed to boost lending to companies and home buyers.
The injections, in the first quarter of next year, will boost core tier one capital ratios at the two banks to around 8 percent from around 6 percent currently, bringing them into line with international peers.
The package will be paid for from funds set aside during Ireland’s “Celtic Tiger” economic boom and originally intended to meet the state’s future pension obligations.
Analysts said the deal was attractive for the two main players because it was not as dilutive or as costly as the British 37 billion pound bailout plan unveiled in October.
“It’s a substantially better package than the British one as far as the banks and their shareholders are concerned,” said Kevin McConnell, head of equity research at Bloxham Stockbrokers.
The government will also underwrite plans by Bank of Ireland and Allied Irish Banks to raise up to 1 billion euros each in additional capital. No details of that capital raising were given.
The government will make an initial investment of 1.5 billion euros in Anglo Irish Bank, giving it 75 percent control of the lender and a fixed annual dividend of 10 percent. Dublin said it would make further capital if required in order to ensure Anglo remained a “sound and viable institution.”
Anglo’s chairman, chief executive and one non-executive director have already walked the plank over the loan scandal and Lenihan said the rest of the board would be “reconstructed” after an extraordinary general meeting next month to approve the capital increase.
Donal O’Connor, who was appointed this week to replace Sean FitzPatrick as chairman, will remain.
The move to bail out Anglo Irish, a niche lender that has fallen foul of struggling commercial property markets, is controversial following the loan scandal.
“I highly doubt the capacity of that bank to start lending money again,” said Leo Varadkar, a spokesman from the main opposition party, Fine Gael.
“I think in the case of Anglo a wind-down operation may have been more appropriate.”
But Lenihan stressed that Anglo, a one-time poster boy Ireland’s economic revival, had a viable future.
“We believe that with appropriate public direction this bank can survive and can be turned around in time.”
In return for the state funding, all three banks will be expected to boost their lending to small and medium-sized businesses by 10 percent next year and increase lending to first-time buyers by 30 percent. There will also be a new code of practice for business lending.
After riding high on the back of a dizzying property boom in the late 1990s and early 2000s, Ireland’s banks have seen their share prices hemorrhage as the real estate bubble burst and the global credit crunch hit.
Ireland was one of the first European countries to react to the collapse of Lehman Brothers in September with a radical 485 billion euro scheme to guarantee bank liabilities which infuriated neighbouring countries who were forced to follow suit.
But the government then stayed on the sidelines while other countries recapitalised their banks preferring for lenders to raise their funds privately.
With no deals sealed and the Anglo scandal hitting the headlines last week, Dublin was forced to lay out its own investment plans.
Additional reporting by Paul Hoskins; editing by Gary Crosse
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