Govt to reveal scale of 'final' bank bailout

Taxpayers will learn tomorrow the scale of their latest multibillion-euro bill to clean up the financial mess in the country’s banking system.

The Government is expected to confirm it will seize control of three more lenders, including Allied Irish Bank, in a day of major announcements dubbed “Bailout Tuesday”.

Building societies EBS and Irish Nationwide could also be effectively nationalised in an anticipated €16bn masterplan to finally resolve the banking crisis.

In a wave of statements within hours of each other, the National Asset Management Agency (Nama) will also reveal how much taxpayers will pay for toxic loans.

The State’s “bad bank” will detail the knock-down prices for taking over massive borrowings to developers and speculators in a plan to free up the banks so they can start lending again.

Around the same time, the Financial Regulator, Matthew Elderfield, will forecast how much the banks need to keep in reserves to cover bad debts over the coming years.

The closely coordinated announcements are intended to reassure the rest of the world that the Irish banking system is being fixed and is safe for international investors.

Speculation has been mounting that the multi-billion euro clean-up operation will see the State take a stake of more than 70% in AIB – one of the country’s largest two banks – in a move which would effectively nationalise the lender.

Ahead of the huge taxpayer bailouts – or recapitalisation – AIB said it was hiking mortgage interest rates for tens of thousands of homeowners.

Standard variable rates with the bank go up 0.5% while loan-to-value variable rates increase by 0.34%. Fixed rates for new customers will rise by up to 0.66%.

Kieran O’Donnell, Fine Gael’s deputy finance spokesman, blasted AIB for the “cynical” hikes on the eve of what he branded “Bailout Tuesday”.

“AIB is thumbing its nose to hard-pressed mortgage holders and taxpayers,” he said.

“These mortgage holders are the very people who will be carrying the burden of recapitalisation and Nama for generations to come.”

But Maurice Crowley, product manager with AIB, insisted the bank was trying to keep necessary rises to a minimum.

“Unfortunately, in such circumstances, it is neither sustainable nor prudent for the bank to continue to provide mortgage finance at below the cost of funds, so rate increases are necessary,” he said.

Taxpayers are also expected to pick up the tab for a 40% stake in Bank of Ireland, as it needs more cash reserves for bad loans, under the Financial Regulator’s guidelines.

The State already owns a quarter of AIB, 16% of Bank of Ireland and has complete control of Anglo Irish Bank after last year’s €11bn bailout of the three institutions.

Mr Lenihan will also reveal how much more public cash will be pumped into the nationalised Anglo as it prepares to reveal losses expected to be the largest in Irish corporate history.

Share prices in AIB and Bank of Ireland dropped as investors awaited the announcements on the future of Irish banking.