Government Announces New Bailout For Irish Banks

Following on from moves taken to help Irish banks on November 28 and December 14, the Minister for Finance Brian Lenihan T.D., announced new moves to recapitalize the three major financial institutions in Ireland just before Christmas.

First, he announced an initial investment of €1.5 billion of core tier 1 capital to assist in restructuring Anglo Irish Bank's capital.

The Government will, he said, "continue to reinforce the position of Anglo Irish Bank and will make further capital available if required so that it remains a sound and viable institution."

The investment will be in the form of €1.5 billion of perpetual preference shares with a fixed annual dividend of 10%. The preference shares carry 75% of the voting rights of Anglo Irish Bank, though the investment is subject to the approval of the ordinary shareholders at a general meeting which "will be convened as soon as possible."

On the basis of positive contact with the European Commission, the Minister said he was confident that the Anglo proposal will meet with EU State Aid requirements.

The Government has also agreed with the Bank of Ireland and Allied Irish Banks plc that they will each issue €2bn of perpetual preference shares to the State with a fixed annual dividend of 8%.

These shares will have voting rights in respect of change of control and any changes in the capital structure.

They will also confer 25% of the voting rights in respect of appointments of directors and 25% of the directors on the board, currently including any directors to be appointed in connection with the Government's Guarantee Scheme.

All the institutions may redeem the preference shares within 5 years at the issue price or after 5 years at 125% of the issue price.

Commenting on the announcement Taoiseach Brian Cowen T.D., said, "The recapitalisation announced today will provide the banks with the stability required to continue to lend to meet the needs of the Irish economy.

"The banks will be expected to contribute to the economy in a verifiable manner in relation to credit and in relation to the maintenance of a payments system which is socially inclusive.

"They will be expected to adopt an approach to customer relationships in a way which recognises that customers need support through difficult as well as good times.

"The objective of these decisions is to ensure that the financial system in Ireland meets the everyday financial needs of individuals, businesses and the overall economy.

"As part of this recapitalisation package, I am very pleased that a number of measures to support small to medium businesses and mortgage holders have also been announced."

The capital injection for Anglo Irish Bank is likely to take place following an Extraordinary General Meeting in mid-January, and for Allied Irish Bank and Bank of Ireland, by the end of the first quarter of 2009.