Minister for Finance Brian Lenihan admitted today markets had no confidence in the Irish banking system, and the move to nationalise Allied Irish Banks represented a “last resort” to keep the troubled lender afloat.
Speaking after the Government secured a High Court order allowing it to inject a further €3.7 billion of State funds into the bank, Mr Lenihan said Irish banks had not stayed in private hands because private money had not been willing to invest in them.
“They [the markets] don’t have confidence in them and that’s the state the banks have brought themselves to.”
“We have to have a banking system in this country and it has to be brought into public ownership. I have always made it clear that would be a last resort and we are now engaged in that last resort,” he said.
Mr Lenihan said AIB had failed to meet its capital requirements despite agreeing to sell sizeable subsidiaries in Poland and the US.
Unless further State funds were invested in the bank it would cease to function on January 1st, he said.
The injection of capital will eventually bring the Government’s stake in the lender to 92.8 per cent, once the bank has disposed of its own stake Poland's Bank Zachodni WBK.
Mr Lenihan said because of the amount of public ownership now involved in the bank, its shares would be de-listed from both the Dublin and London stock exchanges.
The shares would still be listed on the junior Irish market, the Enterprise Securities Market. Shareholders will still be able to dispose of their shares under this listing arrangement, Mr Lenihan said.
Asked if the rushed banking legislation and today’s High Court order reflected a further run of deposits at AIB, Mr Lenihan said there had been a gradual erosion of deposits in the Irish banking system but declined to be more specific.
“Rushed legislation was required because in these commercial matters the biggest criticism of our banking policy to date was that we moved too slowly."
He said further actions would have to be swift and determined, indicating the phasing out of Anglo Irish Bank and Irish Nationwide would be accelerated early next year.
Mr Lenihan said Bank of Ireland and Irish Life & Permanent were still seeking funds in the markets but if this failed they too would require further State funding.
On whether taxpayers were likely to see a return on their investment in AIB, Mr Lenihan said there was no reason why, if the bank was run properly, it could not have a reliable rate of profit.
“The difficulty with our banking system is that they became greedy for too much profit and engaged in reckless lending.”
He told RTE's News at One the taxpayer and the National Pension Reserve Fund, which is funding the latest bailout, would get a return from AIB "in time".
However, he conceded this would be in the longer term and there would be no annual return for a number of years. “We will have to wait for a number of years while the bank is turned around and we will then have a solid investment in it,” he said.
