The Dublin stock market has given a mixed reaction to the Government's recapitalisation of three banks.
Shares in Bank of Ireland jumped 32% to end at 89 cent, but AIB added just two cent to €1.67 and Anglo Irish Bank dropped 14% to 30 cent. This came after the Government announced plans to take a 75% stake in Anglo Irish Bank.
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It was also announced today that the Financial Regulator will appear before the Oireachtas Committee on Economic Regulatory Affairs on January 7. He will answer questions on the banking crisis and in particular, its role in the directors' loans controversy at Anglo Irish Bank.
The Irish Bank Officials Association, which represents bank employees, has given the recapitalisation plan a cautious welcome.
Finance Minister Brian Lenihan said he believes Anglo Irish Bank is still capable of repaying its ordinary shareholders some value in the future after his decision yesterday to take 75% control of the bank on behalf of the State in return for a capital injection of €1.5 billion.
Mr Lenihan said his decision to recapitalise Anglo Irish and to inject a further €2 billion in capital into both AIB and Bank of Ireland was taken to ensure that the financial system continues to meet the everyday needs of individuals, business, and the overall economy.
The money for the recapitalisation of the three banks is to come from the National Pension Reserve Fund and the State is to be paid €470m a year in dividends for the investment.
The Minister said that the issue of recapitalising or restructuring the other financial institutions covered by the State bank guarantee scheme is still under discussion.
Three banks agree to mortgage measures
€5.5 billion of taxpayers funds, currently held in the National Pension Reserve Fund, is to be invested between Anglo Irish Bank, Bank of Ireland and AIB. AIB and Bank of Ireland are to get €2 billion of capital each in return for preference shares that will pay a return of 8% per year to the state.
Anglo Irish Bank is to get €1.5 billion of public capital in return for preference shares paying 10% to the State. Both AIB and Bank of Ireland said they will try to raise another €1 billion each from private sources.
Mr Lenihan said the State will also step in to provide this additional capital if the private sector fails to do so. He said the Government has a substantial pool of additional money available for that purpose if required.
The three financial institutions included in the recapitalisation announcement have also agreed to a series of measures designed to continue the flow of credit to individuals and businesses. Among the measures is an agreement to provide an extra 10% in loans to small and medium enterprises, and additional 30% in loans to first time house buyers.
They will also agree to treat people in default on their mortgages with respect, and to wait six months from the time mortgage arrears arise before taking any legal action on repossessions of customers' primary residences. Permanent TSB said it would also stick to these guidelines, even though it is not covered by the measures announced last night.
Each of the three financial institutions will also introduce a €100m fund to support environmentally friendly investments.
Banks welcome funding
The three banks have welcomed the Government's injection of €5.5 billion into them .
'The Government's commitment to make further capital available ensures that the bank will continue to be a sound and viable institution,' newly appointed Anglo Irish Bank Chairman Donal O'Connor said in a statement. 'We are very grateful to the Government for this clear demonstration of support,' he added.
AIB said it was aiming to raise an additional €1 billion from shareholders. 'Our endeavours will be strongly influenced by our analysis of market conditions and the pre-emption rights of our shareholders,' AIB said.
The bank said that is has consistently stated, including in its interim management statement of November 5, that its capital position is good. 'We are mindful though of the growing market expectation for banks everywhere to have higher capital levels,' a statement from the bank said.
Bank of Ireland said the injection would strengthen its capital base helping it to reach its ambition of growing its business in Ireland. The recapitalisation plans are subject to approval by the bank's shareholders.
* Former Agriculture Minister Joe Walsh and former secretary general of the Department of Finance Tom Considine are to join the Bank of Ireland board as non-executive directors. They will take up their posts from January 1.
Both were on a panel of 12 named by the Finance Minister Brian Lenihan to be appointed to the six institutions covered by the Government's guarantee scheme.
