Dublin: Ireland is set to take a majority stake in top lender Bank of Ireland as part of a massive international bailout that could leave the state with effective control of the country’s top three banks.
The state’s ownership of Bank of Ireland could rise to near 80% from 36% now under the bailout, put at up to €85 billion ($114 billion), and Allied Irish Banks could join Anglo Irish Bank in being fully nationalised.
The European Union and International Monetary Fund (IMF) have agreed to provide external assistance to Ireland to shore up its banks and give them access to cheaper state funding.
Billions of the bailout that could be used immediately to recapitalise the banks, but most will be a backstop in case they need more in the future and to ease funding strains.
Irish officials have said they wanted to overcapitalise banks and were expected to require a core Tier 1 capital ratio of about 12%, giving a bigger cushion than most international rivals to withstand future shocks.
Bank of Ireland could need over €3 billion and AIB even more, and the government may be the only provider of funds.
“In the current environment I do not think they stand any chance of getting all that privately,” said Ciaran Callaghan, analyst at NCB in Dublin, estimating that would leave the state with about an 80% holding in Bank of Ireland.
Lifting the core Tier 1 ratio of Bank of Ireland, AIB and Anglo Irish Bank would cost almost €8 billion, Reuters calculations showed, including about 5.6 billion for AIB, 1.6 billion for Bank of Ireland and 500 million for Anglo Irish Bank.
More would be needed if preference shares and other types of capital were excluded.
A plunge in share prices this week has increased the dilution for shareholders and the size of the government stake.
Bank of Ireland shares were down a quarter in value to 22.5 cents by 1110 GMT, cutting its market value to under €2 billion. AIB shares were down 18%, valuing it at less than €500 million . Both have lost about 40% of their value this week.
The government could be left with over 99% of AIB and may only leave the shares listed to make it easier to sell down the stake in future, analysts said.
Irish Prime Minister Brian Cowen said detail of the recapitalistion had not been finalised.
Extra cash could be pumped into Ireland’s ailing banks as soon as this weekend, the Irish Independent reported on Wednesday.
As well as providing capital, the government wants to shrink banks’ loan books to ease a funding strain which has intensified in the past six months after an exodus of deposits, adding to lenders’ dependence on ECB funding, which has risen to €130 billion.
Ireland could also impose a levy on banks as a term of the bailout and to ease a deadlock over the country’s low corporation tax, The Irish Times reported.
Banks have been told to sell assets to focus on aiding the domestic economic recovery. That could see AIB being told to restart a sale of its British business, after halting the process when failing to find a buyer.
The banking crisis has rocked Ireland and stretched its finances. The deeply unpopular government was due to explain on Wednesday how it planned to save €15 billion over the next four years. The IMF and EU bailout depends on the austerity plan and a later budget going through.