Lenihan rules out nationalisation of AIB, BoI

The Government will ensure AIB and Bank of Ireland are not nationalised and will proceed with a planned recapitalisation, the Minister for Finance told the Dáil this afternoon.

During a debate on legislation to provide for the nationalisation of Anglo Irish Bank, Brian Lenihan said the Government’s “firm intention is that both banks [AIB and Bank of Ireland] remain in private ownership”.

Shares in Irish banking stocks have suffered further heavy falls today with AIB losing a third of its value following a 60 per cent fall in the value of its share price yesterday.

At 3.15pm AIB was trading at 40 cent, having earlier fallen as much as 50 per cent to 30 cent.

Having seen modest increases in their share prices earlier, Bank of Ireland and Irish Life and Permanent stocks have also fallen back this afternoon.

At 3.15pm shares in Bank of Ireland were 13.5 per cent lower at 29 cent – having gained up to 20 per cent in early trade - while Irish Life and Permanent shares were 8 per cent lower at €1.01.

Mr Lenihan said the decision to nationalise Anglo Irish was taken because of the very serious disruption its collapse would have caused the financial system, due to its “systematic importance”.

The disclosure of the unacceptable practices in Anglo in relation to directors’ loans led to the erosion of market confidence in the bank and this was “reflected in a limited weakening of Anglo’s funding base in recent weeks . . .”

Taking Anglo Irish into State ownership should have no immediate impact on either the general Government debt or current deficit as “Anglo is a going concern” and will continue to operate as a commercial bank, with no loss of employees, Mr Lenihan said.

Labour party justice spokesman Pat Rabbitte called on the Minister to tell the Dail the likely cost of the nationalisation of Anglo Irish. "If there is to be any real accountablity we need to know the answers to these questions."

Stephen Taylor, equity analyst at Bloxham Stockbrokers, said the share price falls today indicated that the markets were recoiling from recapitalisation using preference shares.

“The market wants equity share capital injected in banks globally, rather than preference shares which is the option the Government has taken with regard to the recapitalisation of AIB and Bank of Ireland," he said.

Separately AIB chief executive Eugene Sheehy said in a message to employees he believes the bank will remain independent.

“We have the depth and strength required to manage our way through this period of uncertainty as an independent organisation and I believe we will do so,” Mr Sheehy said in the message sent yesterday evening.

AIB and Bank of Ireland shares fell by over 50 per cent yesterday on fears that the banks may struggle to raise additional capital without Government assistance.

Mr Sheehy said the decision to nationalize Anglo Irish and developments in other countries “have all had a knock-on effect on share prices and have led to renewed uncertainty and speculation as to what is going to happen next.”

“I can understand that seeing our share price drop severely is worrying.” He said AIB “continues to be a strong, sound, internationally diversified organization”.

Davy Stockbrokers banking analyst Emer Lang said in a note to investors this morning that the Government reaffirmed in a statement last night that it will be proceeding with the planned recapitalisation of Allied Irish Banks and Bank of Ireland.

Ms Lang noted that yesterday’s price declines came on a day that the E300 banks lost over 8 per cent, led by a 67 per cent decline in RBS after it revealed a record loss of £7 to 8 billion and the replacement of £5 billion of UK government preference shares with more government equity that takes its stake to over 70 per cent.