Shares in Allied Irish Banks and Bank of Ireland fell sharply yesterday as the government prepared to take control of a much bigger chunk of the financial sector than initially planned.
The Irish government is this week moving the first loans into a €54bn (£48bn) “bad bank” scheme, and today it will announce how much capital the banks will need to make up for resulting writedowns.
The state could increase its stake in Allied Irish Banks to 70 per cent from its current holding of 25 per cent via preference shares, after the transfers to the National Asset Management Agency, the “bad bank.”
“We have to put the banks in a position where they can fund themselves with confidence in world markets,” said finance minister Brian Lenihan.
Asked if he could envisage taking a majority stake in Allied Irish Banks or other lenders, Lenihan said: “Whatever is required to be done will be done by the Irish state.” However, he said he would not detail his plans before today.
Shares in Allied Irish Banks closed down 19.6 per cent at €1.365, having fallen as low as €1.32, and Bank of Ireland dropped 10.4 per cent.
In Bank of Ireland, in which the government also has a 25 per cent indirect stake plus 16 per cent in ordinary equity, Lenihan could take a 40 per cent ordinary stake.
The two top banks have said they would try to raise capital privately first but authorities may impose tight deadlines for replenishing their capital which would require fresh bailouts.
City A.M. Reporter