Second recapitalisation proposal lifts bank shares

Irish financial shares were ahead between 6 and 16 per cent this afternoon on news that the investment subsidiaries of three banks coupled with other Irish and international institutions are formulating a plan that would see them recapitalise the listed domestic banks with the State as a co-investor.

At 12.58pm AIB shares were over 12.5 per cent higher at €2.70 in Dublin, Irish Life & Permanent was up over 16 per cent at €1.58, Anglo Irish Bank ahead over 6 per cent at 93 cents while Bank of Ireland has gained over 11.5 per cent to €1.54.

The recapitalisation plan was revealed by the Irish Association of Investment Managers (IAIM) last night and could see the banks invest a minimum of €2 billion in clients' funds into banks covered by the State guarantee scheme.

The Government would be required to invest a similar sum through the National Pension Reserve Fund or some other State body.

The plan was presented to the Minister for Finance Brian Lenihan yesterday. The Minister is due to meet again with senior executive from the six institutions covered by the Government guarantee scheme tomorrow.

The IAIM-brokered initiative means there are now two competing proposals for the recapitalisation of Irish banks. A private equity consortium - the Irish-led Mallabraca group - has held discussions with Bank of Ireland and Irish Life Permanent about possible investments.

"A number of investment institutions familiar with the Irish market believe that the process of recapitalising the Irish banks offers an investment opportunity and returns which are attractive to them and their clients," the IAIM statement said.

"It is proposed that institutions which wish to be involved would co-invest with the State in the raising of new Tier 1 capital [cash reserves set aside by a bank to absorb unforeseen losses] for Irish-listed banks.

"A number of domestic and overseas institutions have indicated their support for the initiative. Other overseas institutions will be contacted over the coming days."

In a note to investors this morning Goodbody analyst Eamonn Hughes said the statement mentions listed banks, "so it is unlikely they are interested in EBS or Irish Nationwide".

"IAIM proposal appears to be a move for existing shareholders to get in on the act earlier in the process rather than later on, which appears to have been the position under the private equity plan."