The Government's announcement it will inject up to €7.5 billion into Allied Irish Banks, Bank of Ireland and Anglo Irish Bank has drawn a mixed response from the Opposition and interest groups.
The Government is effectively taking over Anglo Irish with an investment of €1.5 billion for a 75 per cent control of the bank, while it is investing €2 billion each in AIB and Bank of Ireland.
Fine Gael has said the Government's capital injection plan announced yesterday was by itself unlikely to restore confidence in the Irish financial system and called for the Dáil to be recalled tomorrow to discuss the issue.
"The Government has finally moved to recapitalise the banks. Given the scale of the investment involved of taxpayers' funds, and the risks associated with the investment, the Government must recall the Dáil to elaborate on its proposal,” Fine Gael leader Enda Kenny said.
Finance spokesman Richard Bruton said: "The capital injections announced today are unlikely to prove sufficient in restoring the confidence of domestic savers or international markets in the Irish financial system unless further steps are taken.
"First, more private capital must now be raised by Allied Irish Bank and Bank of Ireland themselves. Second, we need a complete overhaul of the system of regulation and leadership of Irish banks. Finally, the Government needs to set out a specific and credible plan for recovery in the real economy and stability in the public finances,” he said.
Mr Bruton said the Government should also have secured more attractive terms for the taxpayer as part of this recapitalisation deal. “There is no upside potential for the taxpayer in the event of a recovery in the share prices of the three banks and the annual dividends are low by the standards of similar recent deals in the USA and the UK.”
He also questioned the provision of €1.5 billion in public resources to Anglo-Irish Bank “before all the facts are revealed regarding secret loans to its directors and the likely scale of property losses over the coming years”.
Labour finance spokeswoman Joan Burton dismissed the recapitalisation deal as a “bad deal for the taxpayer”.
“It is very difficult to see what is the up-side for the ordinary taxpayer here. The taxpayer has already given a guarantee of €440 billion and is now being asked to inject up to €7.5 billion in three banks.
“The coupon rate of 8 per cent applying to the state shares in AIB and BOI is low, compared, for example, to the UK terms. . . . If a low coupon rate is intended to reflect the weakened condition of the banks, the taxpayer should have been given a right to subscribe for ordinary shares at preference rates,” she said.
“Once again, it is clear that the banks have been in the driving seat of this process."
Ms Burton said the fact no senior bankers are to be removed “speaks volumes” and the decision to invest in Anglo Irish Bank is “highly questionable”.
Sinn Féin claimed the Government's plan was bad news for Irish tax-payers. The party's finance spokesman Arthur Morgan said it was clear that the Government has no intention of holding anyone to account for the current financial crisis and that the banks are still calling the shots.
"The Government's recapitalisation plan falls well short of what is required and short changes the Irish tax-payer. The eight per cent interest rate on the investment and ten per cent in the case of Anglo Irish Bank is short even of the conservative rate of twelve percent charged by the British Governments on its recapitalisation loans to English banks.
"What we need to see is the Government negotiating a deal with the banks that ensures good value for the Irish tax-payer while injecting enough revenue into the banks to ensure a cash flow for Ireland's small to medium enterprises and the retention of a state bank for the benefit of the people. The boards of the remaining banks should be replaced and there must be accountability for the current mess in our financial institutions.," he added.
The Irish Small & Medium Enterprises Association (Isme) has given a guarded welcome to the Government's announcement.
It said that it was vital banks not only had the requisite capital in place for lending to SMEs but also changed their SME lending policies.
“It is imperative that SME lending policies are changed to ensure we get cash flowing in the economy and that businesses are in a position to trade successfully out of the current difficult times, with access to bank credit vital in achieving this,” said Isme chief executive Mark Fielding.
The association also called on the Government to impose a freeze on all bank charges for two years to ensure banks do not take advantage of their existing customers to fund the cost of the State guarantee scheme and capitalisation.
Employers group IBEC, meanwhile welcomed the focus on business credit in the plan.
"The recapitalisation of the bank will ensure that further emphasis is placed on growing lending to small and medium sized enterprises. I welcome the assurance that the banks will provide at least an additional 10 per cent
capacity for lending to viable small to medium enterprises in 2009," said Ibec director general Turlough O'Sullivan
Separately, the Irish Bank Officials' Association (IBOA), which represents about 40,000 bank staff, welcomed the Government's decision to make capital investments in the three major Irish banks.
However, it called on the Minister for Finance to carry out a fundamental review of the Irish banking sector and to exclude private equity funds from any significant involvement in Irish financial institutions.
“While the Minister’s capital funding arrangement for AIB and Bank of Ireland allows the banks to seek investment from private sources, the State’s underwriting of the rights issue means that there is no need for either AIB or Bank of Ireland to entertain the predatory private equity funds – whose short-term profit maximisation model would not sit well with the need for a steady return to good financial health for the banks which is vital to underpin the recovery of the economy as a whole," said IBOA general secretary Larry Broderick.
The IBOA is to meet senior management in Bank of Ireland and AIB early in the New Year for talks on a range of issues including protection for the jobs and terms and conditions of staff as well as measures to support customers and small business.