Lenihan: Big two banks won't be nationalised

Finance Minister Brian Lenihan today reiterated the country’s two biggest banks will not be nationalised as Allied Irish Banks revealed it will sell part of its business to raise money.

The much-needed €1.5bn cash injection is being sought to shore up the bank on top of the Government’s €3.5bn recapitalisation scheme, announced in February.

AIB said it was prepared to sell off assets to end uncertainty over its future but Mr Lenihan repeated assurances that there are no plans for a state takeover.

“This move by AIB will further boost confidence and credibility in AIB’s ability to weather the financial storms we have experienced and to emerge in a stronger position when conditions improve,” the minister said.

Mr Lenihan said strengthening the bank’s finances will improve the balance sheet and put it in a better position to lend to businesses and support economic recovery.

AIB’s decision to boost cash reserves followed talks with government officials and stress tests which revealed the state recapitalisation had not done enough to shore up the books.

The same stress tests were applied to Bank of Ireland during talks which showed the bank did not need further support on top of the state scheme.

AIB, Ireland’s biggest lender by market value, also confirmed it is planning to sell off toxic property loans to the State’s National Asset Management Agency (Nama).

It described the Nama scheme, which is being set up to take control of failing loans, as a positive step.

Mr Lenihan welcomed AIB’s support and said the scheme would be fast-tracked to get it up and running over the coming weeks.

The minister also warned that if the state has to step in again it would take equity in the bank, which would have the effect of increasing state ownership and control.

In a statement AIB said: “Following discussions with the Minister for Finance, and reflecting his desire to ensure that systemically important banks would remain adequately capitalised, even in stressed scenarios, we have decided to take further action to strengthen our capital position.”

“The bank acknowledges that the minister has said that if any further capital injections are required from the State these would be in the form of equity capital,” added Allied Irish.

Shareholders are set to have their say on the bank’s proposed initial €3.5bn boost from the Irish Government on May 13.