State to be left with 99.8% of merged AIB-EBS

THE STATE will be left with a stake of 99.8 per cent of AIB under an agreement reached with the Government to recapitalise the bank to meet the Central Bank’s stress-test target.

The bank made the announcement shortly after its takeover of EBS building society yesterday to form one of the two “pillars” of Irish banking. After its merger with AIB, EBS ceased to be a building society, ending its 75-year life as an independent institution.

The Government will inject €5 billion at one cent a share into the enlarged bank, which, with EBS, requires a total of €14.8 billion. This will increase the State’s shareholding in the bank to 99.8 per cent from 93.1 per cent.

The State will also provide €1.6 billion of contingent loans, which will convert to ordinary equity shares if AIB’s core tier one capital falls below 8.25 per cent.

Any further shortfall – estimated to be €6.6 billion following any gains from imposing losses on the bank’s subordinated bondholders – will be provided by the way of a State capital contribution “for no consideration” and so no new ordinary shares will be issued.

This would provide “a sustainable future as a systemically important pillar bank”, said AIB.

The last AIB bondholder, New York-based hedge fund Aurelius, yesterday withdrew its challenge to the Minister for Finance’s plan to inflict losses of up to 90 per cent on the bank’s junior lenders.

The bank had made a gain of €1.6 billion inflicting losses on subordinated bondholders before applying the Minister’s Subordinated Liabilities Order on the two bonds subject to the legal action.

AIB will ask shareholders to approve the latest State bailout at an extraordinary general meeting on July 26th followed by the annual meeting later that day.

Following the takeover of EBS, the society’s chief executive Fergus Murphy will report to AIB executive chairman David Hodgkinson and will join the bank’s executive committee.

The building society becomes EBS Limited and will operate as a subsidiary of AIB and a standalone and separately branded entity with its own branch network.

Mr Hodgkinson said the merger was “a very significant development for the Irish banking sector and a major step in its repair”.

Mr Murphy and three EBS board members – finance director Emer Finnan, chairman Philip Williamson and non-executive director Jim Ruane – will remain directors of the AIB subsidiary.

They will be joined on the board by AIB non-executive director Catherine Woods and senior executives Bernard Byrne, Eamonn Hackett and Denis O’Callaghan.

The remaining non-executive directors of EBS have resigned. They are Martin Donnellan, Pat McCann, Liam Mulvihill, Linda O’Shea Farren, Barbara Patton, Ann Riordan, Anthony Spollen, Ethna Tinney and Cathal Magee.

EBS accounts will automatically become accounts at the new AIB-owned entity and customers are not required to make any changes.

Following the State’s recapitalisation, AIB will be left with 513 billion ordinary shares, of which 0.2 per cent will be publicly traded on the junior Irish stock market, the Enterprise Securities Market.