Government to nationalise AIB

 

The Government has secured a High Court order allowing it to pump a further €3.7 billion of State cash into Allied Irish Banks from the National Pension Reserve Fund in a move that effectively nationalises the bank.

The application was made this morning under the Government’s new sweeping bank rescue legislation – the Credit Institutions (Stabilisation) Act - which was used for the first time since it was enacted earlier this week.

The Government applied to the court to avoid seeking shareholder approval, which it is allowed to do under the new legislation.

The bank requires further Government cash to protect against higher losses on property loans and to meet the end-of-year deadline set by the Financial Regulator to bolster its capital.

Initially the Government will hold 49.9 per cent of the shares in AIB. This is to facilitate the sale of AIB's 70 per cent stake in Poland's Bank Zachodni WBK to Banco Santander.

When the sale is complete the Government's convertible non-voting shares will be changed to ordinary shares giving the State 92.8 per cent of the shares in the bank.

The High Court has also ordered AIB to de-list from the main market of the Irish Stock Exchange and the London Stock Exchange. The court has directed that it list on the junior Irish market, the Enterprise Securities Market instead.

The statement says AIB will be required to raise a further €6.1 billion of core tier 1 capital prior to the end of February.

The move brings AIB into State control and puts the bank alongside Anglo Irish Bank, Irish Nationwide Building Society and EBS building society in State hands.

The European Commission approved a further injection of €3.7 billion for AIB on Tuesday, setting up the latest bailout.

AIB, which is 19 per cent State-owned, requires further cash to meet the end-of-year target of capital ratio of 8 per cent where the bank must set aside €8 for every €100 out on loan to cover losses.

The commission has also approved a further €6.1 billion injection into AIB so the bank can meet a higher 12 per cent capital ratio by the end of February.

This is part of the plan to “over-capitalise” the banks to international levels under the plan agreed with the EU and the International Monetary Fund.

The commission temporarily approved the emergency aid to AIB on the condition that a revised restructuring plan was submitted.

Under the new bank legislation the Minister has wide-ranging powers to fire directors and force losses on subordinated bondholders to reduce the cost of AIB. The latest recapitalisation will be the bank’s second State bailout as it received an injection of €3.5 billion last year.

Spiralling losses have raised AIB’s capital hurdle, first to €7.4 billion in March, to €10.4 billion in September and to €15.7 billion last month. This left the bank with no alternative but to seek further cash from the State, making effective nationalisation inevitable.

AIB has raised about €4 billion from the sale of its bank in Poland and a stake in US regional bank MT, but it had little chance of raising the remaining €9.8 billion required from shareholders with a market value of just €432 million.