Bank recapitalisation plan gets mixed response

STOCK MARKET investors gave a mixed response to the Government's plan to recapitalise the banks with up to €10 billion from the State, private investors and existing shareholders in the banks.

Anglo Irish Bank, whose shares collapsed last week amid concern that it did not have sufficient capital to absorb rising loan losses, fell again yesterday, closing down 4.5 per cent at 36 cent, despite rising almost 25 per cent early in the session in the initial response to the plan.

The three other public banks - AIB, Bank of Ireland and Irish Life Permanent (ILP) - outperformed Anglo. Analysts attributed this to the Government's recapitalisation statement, which said the State would invest in banks on a case-by-case basis, "having regard to the systemic importance of the institution".

Anglo is regarded as a specialist property lender, while the other three banks have wider businesses, controlling 57 per cent of the Irish mortgage market.

AIB fell one cent to €1.97, Bank of Ireland gained 11.3 per cent, or 10 cent, to €0.98, and ILP rose 9.2 per cent to €1.66.

A spokeswoman for AIB said the bank could not comment on the recapitalisation programme until its board had met to consider the plan. She did not know when the board would meet. The bank had previously said it could raise capital, such as by selling assets, and that it would "rather die" than raise equity.

A spokesman for Bank of Ireland said the bank was considering the details of the programme and would be reverting to Minister for Finance Brian Lenihan on it.

ILP and Anglo said they noted the statement but would not be commenting on it. EBS building society also declined to comment, and there was no comment from Irish Nationwide.

The six guaranteed lenders - AIB, Bank of Ireland, ILP, Anglo, EBS and Irish Nationwide - have until early January to submit proposals on recapitalisation to the Government, which has said the State may use money from the National Pensions Reserve Fund for the programme, with shareholders and private investors also contributing.

The Irish Bank Officials' Association cautiously welcomed the plan but urged the Government not to resort to private investment. It called for more information on the restructuring of the banks and the implications for jobs and terms and conditions of employment.

"It would represent a short-term fix with even more serious consequences in the medium to long term once these predators had extracted as much as possible from the banks' assets and moved on elsewhere," said the body's general secretary, Larry Broderick.

Fine Gael finance spokesman Richard Bruton described the plan as "sketchy" and "little more than a restatement" given Mr Lenihan had already pledged to recapitalise the banks if necessary. "It seems designed more to buy time for the Government rather than to actually get cash flowing again."

Analyst Scott Rankin at Davy stockbrokers said: "While effectively a holding statement as it's very light on details, it should go some way to restoring calm."