Minister pledges €7bn bank aid package
He promised this would be the last cash injection needed for these institutions.
Mr Lenihan said the country will take 25% control of AIB and Bank of Ireland in return for a 8% annual dividend from each.
For this the banks will have to take a compassionate line on mortgage holders in difficulty, free up credit to small businesses and reduce the senior executive’s salaries by 33%.
In a press conference at Government Buildings last night, he said the banks were of “systemic importance” to the Irish economy and for this he was prepared to back extraordinary measures. “We are taking an act of faith in our two largest banks with this decision,” he said.
The e7bn figure is an increase of e1.5bn in each of the banks from the initial recapitalisation scheme announced before Christmas.
However, Mr Lenihan was adamant this figure would be sufficient to restore the viability of the banks and cover whatever bad debts they will have to write off.
He said international commentators were wrong to suggest the banks would need much more than e3.5bn.
Mr Lenihan said his officials had analysed the bad debts each bank expect and because most of these were linked to sellable properties, they had a value which would be redeemed.
Even if developers went to the wall, Mr Lenihan said, this package should be enough to ensure the banks are able to continue to trade as normal.
“As far as the Government is concerned, this is the recapitalisation of these two main institutions which are of systemic importance,” he said.
The minister said the Government was anxious not to burden the banks with too hefty a repayment schedule: “More capital would mean more repayments... it is important through this exercise that we provide these banks with a position that is credible.”
Mr Lenihan said 57% of the money will come from the National Pension Reserve Fund; the rest will be borrowed from the money due to be put into the fund over the next two years.
He said the taxpayer was entitled to expect a good return with the option of maximising the return in five years’ time. The other banks under the guarantee scheme will be examined in due course and the terms are likely to extended.
Mr Lenihan ruled out the creation of a “bad bank”. His reason for this was that Ireland’s exposure was to property and not paper- based speculation.
And he criticised opposition parties who had rounded on him for not reading the 120-page independent evaluation for each of the banks. He said they were “fixated with what pages of a report I read and did not read, in a report that went through many drafts”.
“No decision of the Government was affected in any way by the fact that I did not read page 129 of the report,” he said.
He said he had not told Taoiseach Brian Cowen about the e7bn loan between Irish Life & Permanent and Anglo Irish Bank.
Under last night’s deal the State will appoint a quarter of the board members of each of the banks. Bank of Ireland’s board will put themselves at the mercy of the shareholders at the required extraordinary general meeting.
Meanwhile, the Financial Regulator will bring forward a statutory code of conduct for troubled mortgage holders this week.
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