Government denies it is set to nationalise BoI

THE GOVERNMENT has tried to quell rising concern over the future stability of the country’s banks by denying it is set effectively to nationalise Bank of Ireland — on top of AIB — by the end of this week.

While a near-total nationalisation of AIB and an increase in the state’s stake in Bank of Ireland, from its current 36% level, has been widely touted in recent weeks, reports in the British press in the last couple of days have ratcheted up the speculation — by suggesting that a further stake is likely to be bought in Bank of Ireland, as part of the planned €85bn rescue package being negotiated with IMF/EU representatives.

A report in the Financial Times suggested that the Government is readying a new cash injection into both banks — amounting to hundreds of millions of euro — by the end of this week, that could see it take a 99% stake in AIB and take a majority shareholding in Bank of Ireland.

A Department of Finance spokesperson said that no such decision had been reached.

They added that any decision as to the future profile of the Irish banking system — including shareholdings in the two main banks — would only follow the publication of the four-year economic recovery plan, the passing of Budget 2011 early next month and the conclusion of the overall bailout talks, which could continue well intoDecember.

Both of the banks in question declined to comment on speculation, yesterday. However, international news agency Bloomberg quoted European Commission spokesperson Amadeu Altafaj as saying the Irish banks are facing “severe” restructuring requirements.

Ireland’s banks are likely to see “overcapitalisation” measures that would result in them amassing larger tier-1 capital ratios (around 12%, on average) than many of their international rivals, in order to protect themselves against future potential financial crises.

This would likely see a further €5.6bn having to go into AIB and €1.6bn needed by Bank of Ireland, according to economic commentators. The direct result of this activity would see almost across-the-board Government ownership and a near total dilution of existing shareholder interest.

Yesterday, saw wildly differing share activity in both banks — AIB rising 3% to 34c, but Bank of Ireland shedding 11.3% to 27c.