BACKGROUND:An embattled board finally accepted the game was up when it opted to take another €3bn in State aid, write SIMON CARSWELLand CIARAN HANCOCK
AT ABOUT 6.15am yesterday the board of Allied Irish Banks broke up after a marathon and draining 13-hour emergency meeting.
The game was up. The State would provide another €3 billion in capital from the National Pension Reserve Fund and majority control of the bank would pass to the taxpayer.
This is on top of the €7.4 billion capital target set last year.
The board discussed the implications of accepting the additional State capital and the inevitability of State control and whether they were legally obliged to consider rejecting it or if they should consider drafting an alternative plan.
Press statements concerning the resignations of managing director Colm Doherty and executive chairman Dan O’Connor were also discussed. The meeting ended minutes before the Central Bank’s announcement at 6.30am and shortly before the Government said it would take control of the country’s largest bank.
In truth, however, the writing was on the wall for AIB as soon as the higher discounts on the third tranche of loans to be moved to the National Asset Management Agency became clear last month.
Once the Central Bank realised the haircut on AIB’s Nama loans was heading well above the 48.5 per cent in the second tranche transferred in July, towards 60 per cent, it became clear that AIB needed more cash.
At that stage, it was felt AIB’s plans to raise the existing €7.4 billion target were doomed to fail given the bank’s low share price and the fact that raising €3 billion in fresh equity in highly volatile markets would be impossible.
The regulator decided to bite the bullet and bring matters to a head, particularly given that AIB had reached its end of September deadline on a decision on the sale of the Polish, US and UK assets.
Only the Polish lender, Bank Zachodni WBK, the bank’s most valuable asset and the one most in demand internationally, had been sold and netted €2.5 billion, leaving a further €4.9 billion to go.
AIB was heading for majority Government control as the bank was still well shy of the capital target. The convergence of several factors spelt the end for AIB as a privately-owned bank.
The Government and Central Bank wanted to bring to an end the damaging, drip-drip effect caused by successive, inadequate recapitalisation announcements.
AIB had fought to the bitter end, trying to resist higher capital demands in intense 11th-hour discussions. The bank sought to push the Nama losses out to next year and lobbied against the draconian haircuts it was applying.
The Central Bank only told AIB of the decision to add a further €3 billion to its capital tab on Wednesday. But the Government decision to clear out the board had been in train for about a week. The feeling was an announcement could not be made about Anglo Irish Bank’s higher cost and not for AIB when both lenders faced far higher Nama haircuts.
As part of the second bailout of the bank, the National Treasury Management Agency, which manages the Government’s banking plan, told AIB that Mr Doherty and Mr O’Connor must stand down as a condition of the further €3 billion bank bailout.
Mr Doherty had coveted the top job at AIB for years but lasted just 11 months in the role.
At 52, his career in banking looks over. AIB shareholders have also effectively been wiped out.