Irish gov’tunveils $7.7 bln bailout
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DUBLIN - Three of Ireland's major banks yesterday welcomed a 5.5 billion euros ($7.7 billion) government bailout designed to boost their cash reserves and lending power in the face of 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 requires shareholder approval at emergency meetings starting 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.
Nationalization
Anglo-Irish Bank, a specialist lender heavily exposed to the collapse of Ireland's property and construction markets, would fall under government control. The government 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, an Irish senator and financial commentator.
Ross said the government should have insisted on majority voting rights and a total overhaul of the boards at Allied Irish and Bank of Ireland.
In 2009 the government expects the economy to decline by at least 4 percent, unemployment to rise above 10 percent, and deficit spending to surge amid falling tax collections and rising welfare bills.