Govt unveils new banks bail-out

The Government tonight announced a revised bank recapitalisation, pumping €7bn into Allied Irish Bank and Bank of Ireland.

The money will be split equally in an attempt to shore up the two finance houses amid fears of failing loan books and massive share price falls.

Under the plan, senior executives’ salaries will be slashed by a third, bonuses will not be paid and no pay rises will be handed out for last year or this year.

Non-executive directors will also take a 25% pay cut at least.

Finance Minister Brian Lenihan insisted the Government does not intend to take-over AIB and Bank of Ireland.

Instead the Government will take a holding in the bank through preference shares which can be bought in five years time at a low price if the banks stock market value increases.

“The State will not hold ordinary shares in either bank... but it will have an option to buy shares in five years time at a predetermined strike price, thus providing the State with the potential for a significant return,” Mr Lenihan said.

The Government will also have the power to select a quarter of the boards in both banks.

In a short statement Bank of Ireland said: “The package of measures will enable Bank of Ireland to play a full role in supporting our customers and aiding economic recovery.”

The Government also said home repossessions will be suspended under the deal.

The two banks, who loaned huge sums to first time buyers during Ireland’s boom years, have agreed to stall legal action for six months after mortgage arrears begin.

Court cases to seize houses will be held off for a full year.

“The recapitalised banks have, in addition, assured Government that in the normal course of events they will make every effort to avoid repossessions,” the minister said.

Other aspects of the deal include;

:: A 10% increase in lending to small business.

:: A 30% increase for first time buyers.

:: A €100m environmental and clean energy innovation fund from each bank.

General meetings with shareholders are planned allowing them to debate the scheme.

The recapitalisation plan was finally put together after weeks of talks with senior bank executives and a three hour Cabinet meeting in Dublin.

Talks are ongoing on a deal to prop up other finance houses covered by the Government’s deposit guarantee scheme – Irish Life & Permanent, EBS and Irish Nationwide.

The Unite trade union, which represents 3,500 workers at the other three institutions, urged officials to act swiftly to protect the institutions.

Regional organiser Colm Quinlan said: “The Minister for Finance needs to clarify the government position with regards to the others.

“We have vigorously stated this case to government and are shocked that they have still chosen a route which leaves Irish Life and Permanent, EBS Building Society and Nationwide out in the cold.

“We need to see the capital and funding plans for the three institutions within days if we are not to experience a meltdown in confidence.”

The country’s business lobby group, the Irish Business and Employers Confederation (Ibec) said the €7bn plan will boost confidence and sends a positive message to the domestic and international business community.“

The Irish banking sector has been in turmoil for months with Anglo-Irish Bank - once a flag bearer for the Celtic Tiger economy and built on aggressive lending to developers – nationalised at the height of the crisis.

It was forced into public ownership after a loans scandal involving its top executives including former chief Sean Fitzpatrick.

Irish Bankers’ Federation chief executive Pat Farrell said the cash boost was crucial for the sector’s survival.

“While the causes are many, there is full acknowledgement that the sector must take its share of responsibility for the crisis,” Mr Farrell said.

“Rebuilding sector stability and confidence will take time and we are fully committed to working constructively with Government, Regulators and all of our stakeholders to achieve these goals.”