The Government will acquire a direct stake of 16 to 17 per cent in Allied Irish Banks in lieu of an interest payment over the coming weeks, its chairman said today.
Speaking at the bank’s annual general meeting in Dublin today Dan O’Connor said the lender would give the Government ordinary shares instead of a coupon payment on the state's €3.5 billion preference share holding. The interest payment cannot be made in cash due to an EU ruling.
Mr O'Connor also apologised to shareholders and taxpayers for the “self-inflicted” problems faced by the bank and described the bank’s performance last year as “highly unsatisfactory”.
“We lent too much money to the property and construction sector in Ireland in recent years and, as a result, most of our present problems were self inflicted. I want to again acknowledge that we take responsibility for these actions.
“On behalf of the board I wish to express our regret for the impact of past decisions on shareholders, staff, customers and the taxpayers of Ireland.”
Mr O’Connor also said the bank’s disposal of assets to help meet its capital requirements would not be a “fire sale”.
Mr O'Connor said AIB needed to raise €7.4 billion in additional equity capital in order to achieve the equity tier 1 capital ratio of 7 per cent demanded by the Financial Regulator.
He said AIB’s new management team, led by group managing director Colm Doherty, has until the end of this year to take actions to meet the bank's capital requirements.
“We have a series of actions planned in this regard. However, if we are not able to meet the regulatory requirements through these planned actions, then the Government will provide the additional capital we need,” Mr O'Connor said.
"This would see the State increasing its stake in the bank. The extent of the Government’s stake will become clearer in the coming months after we implement our planned actions."
Mr O’Connor said the bank planned to sell its UK and Polish businesses and its stake in M&T to meet “a substantial part” of the capital demands.
“We have no option but to sell those assets,” he said.
The capital raising plan also includes an equity issue targeted at private investors which will be underwritten by international investment banks or the Government.
Mr O’Connor said the bank has yet to receive a date for the European Union’s verdict on its restructuring plan.
“We are learning the lessons from the past and applying them to our actions and attitudes,” he said. “Our credit underwriting, credit risk policy and strategy, best practice and standards are being overhauled and centralised so we won’t repeat the mistakes which contributed to our present problems.”
He said the bank’s trading performance in the year to date “is broadly in line with our expectations in what continue to be very challenging conditions”.
Mr O'Connor also said the bank was committed to making a further €3 billion available to small and medium businesses this year and in 2011.
"It's not going to be a fire sale, we are not rushed into having to have these businesses sold in the next few months," said O'Connor, whose predecessor had eggs thrown at him at a meeting called a year ago to approve its government bailout.
The union representing bank employees this afternoon urged AIB to reconsider its decision to sell subsidiaries in the UK.
IBOA general secretary Larry Broderick said in a statement staff in First Trust Bank in Northern Ireland and Allied Irish Bank in Britain were anxious about their own futures and about the impact on customers.
He said AIB was also unlikely to realise the full economic value of the assets due to a depressed market.
At 3.15pm shares in AIB were trading at €1.40, a drop of 3.4 per cent. Banks across Europe were under pressure today due to concerns about a possible contagion following debt rating cuts for Greece and Portugal.