Irish state may lead US$13.4b bank bailout

By Ian Guider  |   2008-12-16  |     NEWSPAPER EDITION

IRELAND'S government may lead a 10-billion-euro (US$13.4 billion) bailout of the country's banks after the collapse of the country's property boom and the global financial crisis depleted capital.

The government wants shareholders and private investors to support a recapitalization and it will use money from the 18.7-billion-euro state pension fund to invest, the finance ministry in Dublin said late on Sunday. The state may buy preference shares and ordinary shares or underwrite a share issue.

"What I'm mainly concerned about is that the banks are in a position to extend credit," Finance Minister Brian Lenihan told state broadcaster RTE. "That's why we want to make this gesture, a demonstration of confidence in the banks, by upping their capital to show that their buffers are so strong, they are indestructible."

Ireland, the first country in Europe to guarantee the deposits and borrowings of its largest lenders, had resisted injecting public money into the banks, instead pushing them to seek private investment.

Bank shares continued to plunge after the guarantee was announced as lenders including Bank of Ireland Plc and Anglo Irish Bank Corp said they faced rising loan losses and the economy entered a recession, Bloomberg News said.

"This move is to be welcomed," said Kevin McConnell, head of research at Bloxham Stockbrokers in Dublin. "It removes some uncertainty but more details will be needed by the market."

Anglo Irish rose as much as 22 percent to 46 cents in Dublin trading. Bank of Ireland surged 20 percent, Allied Irish Banks Plc, the biggest lender by market value, gained 6 percent and Irish Life & Permanent Plc rose 7.2 percent.

Ireland's index of financial shares has fallen about 90 percent this year, led by Anglo Irish, which has lost 96 percent of its value.