THE GOVERNMENT has opened contact with Allied Irish Banks (AIB) and Bank of Ireland with a view to arranging a mechanism for the provision of an additional €1 billion in public money to each institution under the State recapitalisation plan.
Restating the view that both banks were fundamentally sound and solvent, Minister for Finance Brian Lenihan said in the Dáil that the decision to take Anglo into public ownership did not change the position of AIB or Bank of Ireland or the Government’s recapitalisation plans for them.
Shares in both banks came under renewed pressure yesterday as the Government discussed with them the fallout from their drastic loss in value since the decision last week to nationalise Anglo. The talks continue today after Mr Lenihan met yesterday morning with the chairman and chief executive of both banks.
AIB shares dropped 25 per cent to 45 cent and reached 29 cent at one point. Bank of Ireland shares gained 17 per cent to close at 40 cent.
The Government is providing €2 billion to each bank in the form of preference shares. The banks must seek an additional €1 billion each from private investors, with the proviso the State would give them the funds otherwise.
Although the Government left open the possibility of injecting the additional €1 billion into each bank by buying ordinary shares, this would give the State an equity stake of at least 38 per cent in AIB and a controlling 53 per cent interest in Bank of Ireland. However, it is very unlikely to take a controlling stake in Bank of Ireland.
“The Government reiterates that it sees Bank of Ireland and Allied Irish Banks as central to the Irish financial system and essential to the proper functioning of the economy. The Government wishes to ensure that both Bank of Ireland and Allied Irish Banks remain as independent banks,” Mr Lenihan told the Dáil.
The Bill to nationalise Anglo was passed by 79 votes to 67.
During the debate, Mr Lenihan rejected a claim by economist Morgan Kelly in The Irish Times yesterday that when the Government took the decision on the bank guarantee for six institutions on September 29th it had ignored official advice that only four institutions should be rescued. “That is simply untrue. The only legislation before the Taoiseach and I on that evening . . . was a Bill which, in all material terms, is the same as the Bill before the House today,” the Minister said.
In a circular to staff yesterday, AIB chief Eugene Sheehy said the bank had the strength required to manage its way “as an independent organisation and I believe we will do so”.