Bank of Ireland

Bank of Ireland, Allied Irish Advance on $7.7 Billion Bailout


By Ian Guider and Louisa Nesbitt

Dec. 22 (Bloomberg) -- Bank of Ireland Plc and Allied Irish Banks Plc surged in Dublin trading after the government said it will inject 2 billion euros ($2.8 billion) into each of them to protect the Irish financial-services industry from collapse.

Bank of Ireland climbed as much as 44 percent, the most in two decades, while Allied Irish Banks Plc rose 21 percent following the announcement late yesterday. Anglo Irish Bank Corp. fell 15 percent after the government said it would take control of the company by pumping in 1.5 billion euros.

Ireland, which was the first country in Europe to guarantee all bank deposits, is being forced to use public money after initially urging the banks to seek private investors to assist in the country’s bank bailout. Since the guarantees on Sept. 30, the ISEF Financial Index has plunged 72 percent as lenders’ capital was eroded by bad loans to homeowners and property developers in Ireland and the U.K.

“There was always going to be a relief rally,” said Alex Potter, an analyst at Collins Stewart in London. Anglo Irish will become “state controlled though remains publicly owned. This means the equity remains highly dangerous in the near-term,” he said.

Bank of Ireland and Allied Irish will give the state preference shares that pay an 8 percent annual dividend and 25 percent of the voting rights on issues such as change of control and capital structure. That is in contrast to Anglo Irish, which is giving the state preference shares that will pay a fixed 10 percent annual dividend 75 percent of voting rights. The preference shares are “perpetual” and won’t convert into ordinary shares.

The dividend payable to the government is lower than the dividend of about 12 percent the U.K. has charged British banks that tapped it for new capital.

Management Change

The decision comes days after Anglo Irish was embroiled in a scandal related to Chairman Sean Fitzpatrick’s non-disclosure of 87 million euros in loans he received from the bank. Both Fitzpatrick and Chief Executive Officer David Drumm resigned last week.

The state is also prepared to underwrite a further issue of as much as 1 billion euros in shares by both Allied Irish and Bank of Ireland. The finance ministry said that while it has a “substantial pool” of additional capital available, it “encourages” the banks to seek private money.

Bank of Ireland is “very seriously considering” raising as much as 1 billion euros in additional capital, CEO Brian Goggin told analysts on a conference call. “We’re not going to take it if the consequences of it are materially detrimental to shareholders. We aren’t taking it at any cost.”

Bank of Ireland rose as much as 29.4 euro cents to 96.9 cents, and traded 29 percent higher at 87 cents as of 9:50 a.m. Allied Irish climbed 21 percent to 1.99 euros, while Anglo Irish fell 3.2 cents, or 9.1 percent, to 31.8 cents.

To contact the reporters on this story: Ian Guider in Dublin at iguider@bloomberg.netLouisa Nesbitt in Dublin at lnesbitt@bloomberg.net

Last Updated: December 22, 2008 05:24 EST

Ireland to inject up to $13.5 billion in banks

Ireland to inject up to $13.5 billion in banks

By Simon Kennedy, MarketWatch
Last update: 5:20 a.m. EST Dec. 15, 2008LONDON (MarketWatch) -- The Irish government said late Sunday that it will provide as much as 10 billion euros ($13.5 billion) to recapitalize the country's banking sector.
In a statement the Department of Finance said the move is intended to "ensure the long-term sustainability" of the sector and help underpin the availability of loans to individuals and businesses.

The statement said the investment could be made through the National Pensions Reserve Fund and may take the form of preference shares or ordinary shares. Existing shareholders will also have the right to subscribe for new capital on the same terms as the government.

Shares in the Irish banking sector were higher across the board, with Bank of Ireland (IE:BIR: news, chart, profile) surging around 19%, Allied Irish Bank (IE:AIB: news, chart, profile) up 3.5% and Anglo Irish Bank (IE:CKL1: news, chart, profile) rising 6.1%.

Irish banking stocks have been some of the heaviest hit in Europe as the country faces a deep recession, driven by a collapse in property prices. Read more on Ireland's economic problems.

Even after Monday's gains, shares in Anglo Irish Bank are still down 96% this year and Bank of Ireland is down around 90%.

While the details remained sparse, the capital injections are likely to take a form similar to those that other European governments, like the U.K. and Germany, are providing to their own banking industries.

In the U.K., for example, banks are raising more than 43 billion pounds ($65 billion) in fresh capital from the government and private investors.
Government cash also tends to come with strings attached, such as restrictions on dividend payouts or management bonuses.

"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," the Department of Finance said in its statement.
"The next step in this process will be for the minister for finance to initiate detailed engagement with the credit institutions themselves in respect of specific proposals," it added.
Ireland was the first country in Europe to fully guarantee deposits at its major banks, but had previously stopped short of providing a direct cash injection. The Department of Finance said banks are being asked to submit their proposals for funding by early January.
Simon Kennedy is the City correspondent for MarketWatch in London.

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