BANK of Ireland and Allied Irish Banks will effectively be nationalised as part of the €85bn (£77bn) EU/IMF rescue package.
The bailout, the details of which the Finance Ministry said were still being finalised last night, are expected to see the level of core tier one capital – a key indicator of financial strength – in the Irish banks ramped up to 12 per cent from eight per cent in a bid to bolster confidence in the financial system, and provide a bigger buffer against potential future losses.
The government is expected to inject the additional funds by buying new shares in them, meaning no significant lender in the Republic will be free of state control, with Bank of Ireland, currently 36 per cent owned by the government, now set to be majority owned.
The details came as central bank governor Patrick Honohan said Ireland’s nationalised banking system was for sale. “I have been an advocate for a number of years for small countries to have foreign owners for their banks,” he added.
But if the government wants to make a quick sale it will have to take a heavy loss on its assets. Allied Irish Bank shares were down 11 per cent in just one day’s trading yesterday, during which Bank of Ireland slumped by 21 per cent.
But any fire sale of the banks will probably require the government to break them up and sell off pieces, according to analysts.
Capital Economics’ Ben May said yesterday: “You’re unlikely to find investors who will buy individual banks as an ongoing entity, but there may be parts they might be interested in.”