Ireland offers US$7.7b bailout of 3 main banks

By Shawn Pogatchnik  |   2008-12-23  |     NEWSPAPER EDITION

THREE of Ireland's major banks yesterday welcomed a 5.5-billion-euro (US$7.7 billion) state bailout designed to boost their cash reserves and lending power in the face of a deepening recession.

Finance Minister Brian Lenihan said the boards of the three banks - Allied Irish, Bank of Ireland and Anglo-Irish - would issue preference shares paying fixed dividends to the government in exchange for the aid. The plan needs shareholders nod at emergency meetings next month.

The plan is designed to restore international confidence in Ireland's banking sector, which faces rising loan defaults and the likelihood of worse to come in 2009. Irish banking shares have lost more than 90 percent of their value over the past year - a fall uninterrupted by the government's sweeping decision two months ago to insure all deposits and the banks' own debt commitments.

The government said it would give Allied Irish Banks, Ireland's biggest bank, and No. 2 Bank of Ireland 2 billion euros each. In return, the government will receive preference shares paying a fixed 8-percent dividend - or 160 million euros a year from each bank - as well as 25 percent of voting rights on each bank's board of directors.

Anglo-Irish Bank Corp, a specialist lender heavily exposed to the collapse of Ireland's property and construction markets, would fall under government control.

The state has agreed to pay 1.5 billion euros for preference shares in Anglo-Irish that will pay a 10-percent fixed dividend, or 150 million euros annually. The government would receive 75 percent of voting rights.

Analysts said the government had given generous terms to the Irish banks - but questioned whether 5.5 billion euros would be enough.

"This is a fantastic deal for Ireland's banks and a very bad deal for the taxpayer," said Shane Ross, a senator.

Ross said the state should have insisted on majority voting rights and an overhaul of the boards at Allied Irish and Bank of Ireland.

Lenihan said the state was willing to underwrite the issuing of 1 billion euros each in new Allied Irish and Bank of Ireland shares.