Anglo Irish Bank shares are to be suspended today after the Government dramatically announced it was nationalising the ailing lender.
A planned EGM of Anglo shareholders, due to take place today to discuss a €1.5bn euro state rescue plan, will now be opened and adjourned.
In an 11th-hour twist, the Irish Department of Finance last night said recapitalisation was not the way to secure the troubled bank's future, which has lost four top executives over a secret loans fiasco.
It said its funding position had been weakened, and unacceptable practices - including the €87m loans controversy - had caused serious damage to its reputation.
"The funding position of the bank has weakened and unacceptable practices that took place within it have caused serious reputational damage to the bank at a time when overall market sentiment towards it was negative," a statement said.
"Accordingly, the Government believes that the recapitalisation is not now the appropriate and effective means to secure its continued viability.
"Therefore the Government must move to the final and decisive step of public ownership."
Anglo announced early today that it had requested its shares be suspended from trading on the Irish Stock Exchange and the London Stock Exchange.
Once the flag bearer of the Irish economy, shares were worth €17 in 2007, but yesterday closed at just 22 cents.
The Government said it had taken the nationalisation decision after consulting the board of the bank.
Talks were also held with the Central Bank and Financial Regulator, both of which confirmed Anglo Irish remained solvent.
The Government said the institution was of systemic importance to Ireland and had a balance sheet of about €100bn.
It pledged to keep all employees with the company and said shareholder rights would be respected in the takeover, with compensation plans to be drawn up.
The Government moved to reassure customers, insisting there was no need to take any action.
Finance Minister Brian Lenihan said the bank would continue to operate as normal and he urged depositors and creditors to continue banking.
"I would again stress that this Government decision safeguards the interest of the depositors of Anglo, and the stability of the economy, given the significance of Anglo in this regard, as already recognised by the European Commission," he said.
But despite the assurances, Government officials warned: "In the current circumstances the State is the only available potential owner."
Anglo Irish said its board met yesterday evening after the Government's decision not to proceed with the recapitalisation of the bank.
It said the Government advised members that the ailing lender would be taken into public ownership.
In a statement, Anglo Irish said the board would work fully with the Government to ensure the long-term commercial viability of the bank.
"Anglo Irish Bank will continue to trade normally as a going concern and accordingly customers and providers of funding can be fully assured of the safety of their deposits and investments, which remain State-guaranteed," the statement said.
"The board and management are committed to driving the business forward on an independent and commercial basis."
Anglo Irish was due to hold an EGM of shareholders in Dublin's Mansion House today to approve the Government's €1.5bn rescue plan.
But those plans have been scrapped given the latest announcement and the bank said the meeting would be opened and simply adjourned.
Legislation to bring the move into effect will be brought before the Houses of the Oireachtas on Tuesday.
There was a mixed reaction among the political parties to the nationalisation, with Fine Gael insisting it was what they had been calling for.
Two days ago they publicly opposed the recapitalisation plan, claiming the money would be better spent elsewhere as the markets had no faith in the bank.
Finance spokesman Richard Bruton last night accused the Government of being at sea in its attempts to handle the economy.
"The Government have finally been forced into recognising their mistaken approach to this bank," Mr Bruton said.
"This latest of U-turns, while the correct decision that will help protect the viability of the remaining banks, does not bode well for the steady and assured management of the economy in the future."
The Labour Party said the announcement left the Government's banking policy in ruins.
Finance spokeswoman Joan Burton said: "An unknown quantity of bad debt, running to billions of euro, has now effectively been taken on by the Exchequer.
"This has the obvious potential to further increase the cost of Irish Government borrowing."
Labour said it had consistently challenged the Government's approach and had called for an inspector to be appointed to Anglo Irish.
Ms Burton said enormous damage had been done to Ireland's reputation on international markets.
She also questioned plans to determine compensation for shareholders and said details must be fleshed out without delay.
Sinn Féin described the Government's decision as the right move but the wrong bank.
Finance spokesman Arthur Morgan said there were "too many don't knows" in relation to Anglo Irish.
"Sinn Féin would support the establishment of a state bank and would see it in the context of a critical piece of infrastructure which could be directed to support small and medium-sized enterprises.
"However there are too many 'don't knows' in respect of Anglo Irish Bank," he said.
"For example, we don't know the condition of their loan book and we don't know what changes will be made at board level or at senior management level."
The bank hit the headlines last month over a secret loans scandal that led to four top executives quitting.
Chairman Sean FitzPatrick, the bank's chief executive and two other top-level employees have quit the troubled firm since the loans scandal broke.
Financial regulator Patrick Neary was also a casualty, having stepped down last Friday.
Mr FitzPatrick has admitted transferring the loans to another institution, believed to be Irish Nationwide, to keep the borrowings off the Anglo Irish balance sheet.