SHARES IN Bank of Ireland fell 6 per cent on the Dublin stock market yesterday after the Government took a 15.7 per cent share in the bank through the National Pensions Reserve Fund.

The bank’s stock lost seven cent and closed at a price of €1.18 on its first day of trading since it emerged that the bank was forced to issue 184 million new shares to the State.

The transfer, which requires the bank to issue new ordinary shares, is the result of a European Commission ban on the bank making certain interest payments in the form of cash. The move automatically reduces the value of other shareholders’ positions in the bank.

Traders in Dublin yesterday noted that it had been expected in some quarters that the share price would fall by the same percentage stake that was awarded to the Government. “There are a number of unknowns out there, but things could turn out to be positive,” said one trader.

However, Ciarán Callaghan, a banking analyst at NCB Stockbrokers, described the new stake as “a hiccup along Bank of Ireland’s road to remaining privately owned”.

Minister for Finance Brian Lenihan said yesterday that taking the shares was not the Government’s first plan, but the option to take shares was negotiated with the banks when the Government took out the initial stake. “We arranged that if they weren’t in a position to pay cash, we would get shares of equivalent value.

“The EU has decided that because the structural plan is before them they have to decide whether in fact the Bank of Ireland can pay cash in these circumstances. As an immediate step, we’ve insisted on payment of the shares we’re entitled to this morning. Those shares will go into our pension fund. It’s not an issue of realising the shares next week, or cash needed for expenditure next month. It’s a pension fund that’s not being realised for several decades.”

Speaking on RTÉ’s Morning Ireland, Mr Lenihan said he expected the EU to make a decision on Ireland’s banks within weeks.

“There’s been a huge international welcome for what we are doing in tackling these problems,” he said.

Last week Bank of Ireland said it would give the State shares instead of cash in respect of a dividend payment. The bank had been due to pay €250 million to the State by the weekend under the terms of the Government’s €7 billion bank recapitalisation scheme.

However, the European Commission has placed a “coupon-stopper” on the banks while it considers their restructuring plans. Under Bank of Ireland’s internal regulations, this automatically triggers payment in shares.

Mr Lenihan said he had made it clear he would prefer if the banks raised required capital themselves and only if they could not would the Government take a larger stake in them. He added that he opposed the State imposing legislation on the banks to force them into nationalisation as it would have cast “serious doubts” over the State’s creditworthiness.

Fine Gael again called for the Government to consider its proposal for a national recovery bank, while the Labour Party dismissed Mr Lenihan’s assertion that shares were as good as cash.