THE STATE is set to become the majority shareholder in Anglo Irish Bank as intensive negotiations continue this weekend on an injection of €3 billion into the bank.
It is also expected that the bank's remaining directors will resign as part of the capital injection. The bank's new chairman, Donal O'Connor, will continue in office, with the Government expected to appoint new directors.
Anglo Irish's chief executive David Drumm quit shortly after midday yesterday, 15 hours after the bank's chairman, Seán FitzPatrick, resigned following revelations that he had transferred €87 million in loans in and out of the bank each year over an eight-year period until September 2007 to avoid publicly disclosing the loans.
The Financial Regulator is now investigating the €150 million in loans to directors of Anglo outstanding at the end of September. It is also looking at whether similar loan transfers took place at the other six guaranteed Irish banks and building societies.
A meeting of the regulator's board, which began at 4pm yesterday, continued late last night, with the spokesman saying no statement would be issued.
Director of Corporate Enforcement Paul Appleby said: "We are looking at it. It is certainly not clear at the moment whether any law has been broken." He could not comment further until "we are in possession of the facts".
A spokesman for Minister for Finance Brian Lenihan said: "The chairman of the Irish Financial Services Regulatory Authority has advised the Minister that the board is examining the issues raised by the disclosures of the former chairman of Anglo Irish Bank."
Sources said there was "unease and concern" within the Government that the regulator had known about Mr FitzPatrick's loans for some time and that the Government had not.
Shares in the bank closed at 35 cent last night, valuing it at a mere €266 million. The Government is pressing for an agreement to be reached in principle on the recapitalisation of Anglo this weekend, and possibly AIB and Bank of Ireland, though the focus is on a deal for Anglo.
Government officials hope that they can release a statement on the deal for Anglo and a wider recapitalisation before the stock market opens on Monday.
The Government is not keen to fully nationalise Anglo and intends to offer existing shareholders the opportunity to participate in the new investment, so their interests are not completely diluted.
In a statement following his resignation, Mr Drumm said that it was "undoubtedly in the best interests of Anglo that a new chief executive is appointed".
Tentative approaches have been made through headhunters to senior bankers, including Mark Duffy, chief executive of Halifax-Bank of Scotland (Ireland), in a bid to find a replacement for Mr Drumm.
A spokesman for the bank's auditors, Ernst Young, would not comment on the issue but a source said the firm did not know about the controversial loans.
Separately, The Irish Timesunderstands that Mr FitzPatrick moved personal funds from Anglo to Bank of Ireland in advance of the Government's emergency decision in September to guarantee deposits and debts at the Irish-owned banks.