AIB fights tooth and nail in bid to stay out of state ownership
Published 27/03/2010 | 05:00
Allied Irish Banks, the country's biggest bank, is fighting tooth and nail this weekend to avoid ending up in majority state ownership, the Irish Independent has learned.
Ireland's banks are engaged in crunch negotiations with the Department of Finance as to how many billions of euro they need to raise to absorb massive loan losses and hit the new regulatory targets for the amount of capital they must hold.
The banks have to provide the new financial watchdog chief, Matthew Elderfield, with convincing evidence of how much they will be able to raise privately either by selling assets or going cap-in-hand to their shareholders. Any shortfall will be made up by state capital.
As a result, Finance Minister Brian Lenihan will announce on Tuesday that the Government is preparing to take a significant majority stake in AIB. It is likely to end up with a holding of around 40pc in Bank of Ireland after it completes an anticipated €1bn-plus rights issue.
Analysts believe AIB needs to raise at least €4bn and BoI requires a further €2.5bn. The aim is to ensure they have enough cash in reserve to absorb discounts associated with NAMA, as well as further massive loan losses coming down the tracks.
Discounts being put on the first batch of risky property loans bound for NAMA are running much higher than the 30pc average estimated by Mr Lenihan last September.
Extensive details of the finances of Ireland's banks and building societies are to be revealed on Tuesday when Mr Lenihan stands before the Dail to make a watershed announcement on the future of the Irish banking system.
Mr Lenihan's 'Super Tuesday' announcement will also include:
- The unveiling of long-awaited legislation merging the Financial Regulator with the Central Bank.
- The flagging of new rules allowing authorities to seize control of a failing bank in future, and wind it down if necessary.
- The Government's plans to pump billions of 'rescue aid' into Anglo Irish Bank and Irish Nationwide.
However, rather than go out and raise fresh money for AIB and BoI, the Government will look to convert a large chunk of its existing €3.5bn investment in the banks into actual ordinary shares.
It will result in a huge dilution of the banks' existing shareholders. However, analysts have said for some time that AIB's share price reflects the strong likelihood of the Government having to take a direct controlling stake in the bank.
The Government's tough stance comes as a blow to AIB's new boss Colm Doherty, who said earlier this month he would flog a host of valuable foreign assets before going to shareholders for cash. He signalled that the bank would only go back to the State for equity as a last resort.
A spokesperson for AIB said: "Discussions are ongoing. We couldn't comment at this stage."
The Department of Finance declined to comment.
BoI said it is prevented by market rules from making any market-moving statements ahead of posting figures next week.
Sources familiar with the process spoke last night of "very tense discussions" between the banks, the Department and the regulator's office over how much money all the banks need to raise.
"The talks are far from over. These are destined to go right down to the wire on Monday," said one observer.