State to end up with 90% AIB stake

AIB is looking at virtual nationalisation, with the state likely to end up with a 90% equity holding.

It will not be fully nationalised like Anglo Irish Bank and will retain its listing on the stock market, Minister for Finance Brian Lenihan said.

Asked if he would stand for 2,000 jobs being shed for commercial reasons from the bank after the state becomes the majority stakeholder, Mr Lenihan said: “Let’s be clear about this. AIB is not going to be nationalised in the way that Anglo Irish Bank was.

“It will remain as a listed institution on the market with full commercial autonomy. The bank must be run along full commercial lines.”

That is one of the reasons the bank is being retained as “a listed company”, he said.

AIB must be allowed function on a commercial basis if taxpayers are to get a return from the bank, he said.

“It will, I believe, result in a substantial gain to the taxpayer over time as the bank is restored to its proper position,” he said.

As the new reality dawned for AIB, it emerged about €5 billion of the now €10.4bn in fresh capital will come from the disposal of assets, while the remaining €5.4bn will come from an equity-capital raising programme that will begin in November. This is expected to be completed before December 31.

Mr Lenihan said the high level of state support for AIB “is absolutely necessary given the central role that AIB plays in the Irish financial system.”

He stressed the urgency of developing a new “strategic focus” for the bank once it rids itself of its overseas assets.

Existing bank shareholders can subscribe for the whole or part of their claim on new shares when the bank comes to the market to raise fresh funds.

New institutional shareholders could also be given the opportunity to subscribe for shares, the minister said.

Looking to the future and addressing the need for the bank to play a key role in the revitalisation of the struggling economy, Mr Lenihan said “there will be progressive management and board changes in AIB” to ensure those goals are achieved.

If necessary, the National Pension Reserve Fund Commission will contribute up to €3.7bn for new ordinary shares from its existing cash resources and by the conversion of up to €1.7bn of the existing preference shares, he said.

The state’s investment will be good for the economy but radical changes will be needed in both the management and strategic approach of the bank, he said.

“It will, I believe, result in a substantial gain to the taxpayer over time as the bank is restored to its proper position,” said Mr Lenihan.

The bank has already begun to sell off some assets as part of the capital-raising plan. Earlier this month, it said it was selling its Polish interests to Santander, which will raise about €2.5bn and raised a further €600m from the sale of other assets in that market.

Meanwhile, AIB still hopes to sell its 22.5% share in US bank M&T and to hive off its UK assets, including First Trust Bank in the North that will contribute to restoring its balance sheet.

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