Mixed fortune for Irish bank shares on €10bn rescue plan

 

Shares in Irish banks increased in trading today after last night's announcement that the Government is to invest up to €10 billion in the State's biggest banks and building societies.

At close, AIB shares were €1.97 down 1 cent, while Bank of Ireland shares jumped 12 per cent or 10c to 98c.

Shares in Anglo Irish Bank jumped as much as 24.7 per cent at today's open but finished down 5 per cent. Anglo, which has seen its share price fall by 96.5 per cent in the past year,  closed at 37c  while Irish Life & Permanent was up 9 per cent or 14c to €1.66.

Minister for Finance Brian Lenihan is expected to meet the chiefs of AIB, Bank of Ireland, Irish Life Permanent and Anglo Irish Bank over the coming days to discuss specific proposals for an injection of new capital into the system via a new fund in which the Government will participate.

"What I'm mainly concerned about is that the banks are in a position to extend credit," the Minister for Finance said on RTÉ radio.

"That's why we want to make this gesture, a demonstration of confidence in the banks, by upping their capital to show that their buffers are so strong, they are indestructible."

The Minister said there would be "tough discussions" with banks on the details of any State injection of funds. "We'll spell out the realities as we see them to the relevant institutions."

Mr Lenihan added there was "no question" of fresh public expenditure being incurred in the recapitalisation as there were was a substantial amount of money amassed in the National Pension Reserve Fund.

He refused to be drawn on whether there would be changes in the management of the banks as part of the Government plan.

Speaking this morning, Green Party spokesman on finance Dan Boyle said he did not see recapitalisation as a negotiation process. ¿If they [financial institutions] want to make use of it, they have to speak with the Department of Finance and accept it on the terms it is offered.

"I think the issue of governance and who is going to be running the banks . . . is one of the main issues to be addressed," said Mr Boyle. "My personal opinion would be that there are people there who have brought us to this situation, and they can't be people who are responsible for the solution."

He added it was important the banks passed on money to businesses through direct lending, and this would be one of the conditions of the fund-injection plan.

In a statement last night, the Government said the requirement for public investment will be assessed on a case by case basis, having regard to the "systemic importance" of the institutions in question and the most effective and economical use of resources available to the State.

The Government plans to use money from the National Pension Reserve Fund, or an other public source, to support existing shareholders and new private investors. Legislation underpinning the pension fund will be amended, the Government said.

The move by the Government is aimed at restoring confidence in the banking system and at encouraging lending.

The sum of "up to €10 billion" set out in the statement represents the Government's view of the total amount required to recapitalise the system following a collapse in the share values of the Irish institutions.

The US private equity investors and Irish and international fund managers who have expressed interest in investing in Irish banking will now be asked to formalise their proposals.

The Government statement followed a 7¿-hour meeting in Government Buildings yesterday at which Taoiseach Brian Cowen and Mr Lenihan discussed measures to restore stability to the quoted Irish banks, which have lost more than €56 billion of their market capitalisation since the stock market peaked in February 2007.

"The State's investment may take the form of preference shares and/or ordinary shares and the State may where appropriate participate on an underwriting basis. In principle existing shareholders will be expected to have the right to subscribe for new capital on the same terms as the Government," the statement said.

"A key principle in the operation of such a fund will be to secure the interests of the taxpayers through an appropriate return on, and appropriate terms for, the investment."

While the statement said institutions are being asked to submit their proposals "by early January", it is understood that the Government expects to rapidly advance the recapitalisation plan this week. Mr Lenihan believes there must be senior management changes in any institution supported by the State, it is understood.

On the question of whether the Government would support recapitalisation of Anglo Irish Bank, whose shares collapsed last week, Government sources said it was open to every institution to make proposals to the Government. EU competition rules would not allow any discrimination between institutions at this stage, sources said.

"Any State investment will be undertaken in line with best practice in the EU and elsewhere and consistent with EU rules and, in particular, the recent European Commission communication on recapitalisation," the statement said.

"Recapitalised institutions may be required to comply with such requirements as to transparency and commercial conduct as the Minister sees fit."