‘Secret’ bailout of AIB sparks anger

FINANCE Minister Brian Lenihan provoked fury for using his draconian new powers to effectively nationalise Allied Irish Bank behind closed doors.

Mr Lenihan took €3.7 billion earmarked for pensioners to prop up the bank, making it the fourth financial institution taken into state control.

The injection will virtually wipe out AIB’s shareholders, who have already lost tens of millions of euro in share investments over the last two years.

The minister also ordered that a High Court hearing to allow for the transfer of funds be held in secret, a move roundly condemned by opposition TDs.

The dramatic move was enabled under the new Credit Institutions (Stabilisation) Act which gives sweeping powers to the Finance Minister to intervene directly in the running of the banks. President Mary McAleese signed the rules into law three days ago.

Labour’s Joan Burton said the minister had raided the pension reserve funds to prop up AIB, while barring journalists from the court proceedings.

“Secret court hearings are an anathema in a democratic society and I deplore the minister’s recourse to this device,” said Ms Burton.

“He has raided the Pension Reserve to provide the new funds for AIB. He has used the extraordinary clause in the new act to secure High Court approval by means of a secret hearing, a most disturbing feature of the new law that will deny citizens the right to full disclosure of information on this transaction.”

However, legal experts said the secret hearing was in accordance with the Irish Constitution which allows for the use of in-camera proceedings in exceptional circumstances.

Academic lawyer David Gwynn Morgan said, while the general constitutional principal is that justice is administered in public, article 34.1 of Bunreacht na hÉireann allows for secret hearings in “special and limited” cases.

“Given the times that are in it, I should expect that the notion of commercial sensitivity would be sufficient to amount to a ‘special and limited case’ and so justify a departure from the norm,” said Dr Morgan, Emeritus Professor at University College Cork.

The High Court signed off on the massive cash boost lined up by Mr Lenihan under the tough new banking laws imposed this week. The money means the state has a 49% stake in AIB, once Ireland’s biggest bank, which will soar to 92% when lucrative divisions of the finance group are finally sold off next year.

The payment, from the country’s National Pension Reserve Fund, has been agreed by the European Union and the International Monetary Fund which is overseeing an €85 billion bailout for Ireland.

Under the deal AIB has been ordered by the High Court to cancel its listing of ordinary shares on the main Irish Stock Exchange and cancel trading its shares on the main market of the London Stock Exchange. AIB has also been warned it needs to raise another €6.1bn by February 28.

Mr Lenihan said the billions of taxpayers’ money was essential for AIB to fulfil its role in the economy.

“The order allows the minister to provide capital so as to ensure AIB meets its year-end capital requirement as set by the Central Bank,” he said. “This capital is essential to allow AIB to fulfil its role in supporting the Irish economy.”

The Government’s aim is eventually to re-float AIB on the stock market years down the line or sell the institution to another bank when recovery kicks in.