The Government tonight unveiled a €5.5 billion funding package for the State’s three main banks in the first phase of the recapitalisation process announced last weekend.
Under the plan the State will take out perpetual preference shares equal to 75 per cent of the share capital of Anglo Irish Bank, at a cost of €1.5 billion. The move would in effect create State control over the bank.
It will take out perpetual preference shares in the Bank of Ireland and Allied Irish Bank that would give it a 25 per cent say in relation to key matters in those banks. Each bank would get €2 billion.
The shares would have a ten per cent fixed annual dividend in the case of Anglo and an 8 per cent fixed annual dividend in respect of the other two banks. This would create a total annual dividend of €470 million for the State. The banks would have to pay a dividend to the State before they could pay a dividend to ordinary shareholders.
The three banks are expected to hold shareholder meetings next month to vote on acceptance of the Government scheme. Acceptance of the scheme has the effect of diluting the value of the shares held by shareholders.
In a statement on the issue the Government said it “will continue to reinforce the position of Anglo Irish Bank and will make further capital available if required so that it remains a sound and viable institution.”
The three institutions can redeem the preference shares within five years at the issue price or after five years at 125 per cent of the issue price.
Tonight’s move follows a top-level meetings at Government Buildings involving Taoiseach Brian Cowen, Minister for Finance Brian Lenihan and the governor of the Central Bank, John Hurley.
The move is an effective nationalisation of Anglo Irish Bank, which was at the centre of controversy over loans to its former chairman this week.
Pressure on the Government to act over the banks intensified following the resignation of Anglo chairman Sean FitzPatrick and chief executive David Drumm this week after Mr FitzPatrick said he had transferred loans of about €87 million that he had received from the bank to another bank before each year-end over a period of eight years.
Due to this transfer, the loans, which Mr FitzPatrick said he received on commercial terms, did not appear in annual accounts available to shareholders.
The board of the financial regulator said yesterday it would investigate directors' loans at all banks and building societies covered by the €400-billion Government guarantee programme.
These are AIB, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society.
In a statement issued tonight, Bank of Ireland said it was "determined to protect and grow our share of the consumer and business banking markets and we have seen the renewable energy market as an area of significant potential."
"The further strengthening of the capital base of Bank of Ireland, with Government support, underpins the ambition of the Group to grow its business in Ireland as it plays an important role in supporting the long-term health and strength of the Irish economy," it added.