AIB and BoI injection discussions continue

TALKS WERE continuing yesterday on the planned multibillion recapitalisation of the Bank of Ireland and AIB, with sources uncertain as to when an outcome might be announced.

However, it was considered unlikely an announcement would be made today as it would clash with the outcome of negotiations by the social partners on savings in the economy.

Discussions were continuing on how the injection of State cash into the two banks would be structured, and what the State would get in return. The State is anxious not to assume ownership of 30 per cent or more – a level which would oblige it under stock market rules to make bids for the banks in their entirety.

While an injection of capital of up to €8 billion is being discussed, with an equal amount going to each bank, this could be reduced if a State scheme that would insure the banks against some of their projected losses from bad loans, was among the measures agreed.

A source said the banks were pushing the insurance scheme option as it was in their interest. However, the Department of Finance is anxious that everything is done to pressurise the banks into getting as much value as possible from the weak loans on their books.

The original deal agreed by the banks would have seen the State inject €2 billion into each bank by way of preference shares. This would have given the State 25 per cent of each bank, and the right to four seats on the board of each.

One source last night said AIB was “dragging its heels” in the negotiations, seeking to maximise the position of its existing shareholders. But while the bank might be able to survive without State aid, Minister for Finance Brian Lenihan believes recapitalisation would be better for the economy.

Meanwhile, the external auditors of Anglo Irish Bank, Ernst Young, have declined an invitation to appear before the Oireachtas Joint committee on economic and regulatory affairs next Thursday.

“We have received legal advice that confirms our own belief that to appear before the Oireachtas Committee at this moment in time would not be appropriate,” a spokesman for the auditors said.

The auditors have said they did not know that former chairman Seán FitzPatrick had reduced the extent of his loans from the bank at each year end, for a period of eight years, by transferring them temporarily to Irish Nationwide.

“The 2008 audit of Anglo Irish Bank by Ernst Young is ongoing and investigations into the issues in respect of the directors’ loan transactions have only just begun,” the spokesman said.

“The bank has commenced its own internal investigation and external investigations have also been initiated by various regulatory bodies. There is also a misguided threat of civil litigation.

“Once those matters are concluded we will be happy to co-operate with the committee in a proper manner as we are doing with all interested parties.

“We hope that the committee will appreciate that we are not in a position to comment publicly on issues which are sub judice.”

The auditors said if they had not been satisfied the statements on which they had issued opinions gave a “true and fair” view of the financial position of the bank, in accordance with the information and explanations received, they would not have signed those opinions. The Oireachtas committee will discuss the Ernst Young response today. It is also due to meet the bank’s internal auditors.