AIB nationalised with €3.7bn injection of taxpayers' money
Allied Irish Bank was effectively nationalised today after the Government got the green light to pump in another €3.7bn of taxpayers' money.
The High Court signed off on the massive cash boost lined up by Finance Minister Brian Lenihan under tough new banking laws imposed this week.
The money means the State has a 49pc stake in AIB - once Ireland's biggest bank - which will soar to 92pc when lucrative divisions of the finance group are finally sold off next year.
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."
Mr Lenihan set out the possibility of having to pay the billions last March and the move was prompted after the bank suffered further losses as property based loans were transferred to Ireland's bad-bank, the National Asset Management Agency (Nama).
"AIB has raised a significant amount of capital from its own resources," Mr Lenihan said.
"However, further State assistance has proven necessary given the level of losses that have materialised on its Nama bound loan book and also due to the international expectation for higher capital ratios."
The payment, which is coming from the National Pension Reserve Fund, has been agreed by the European Union and the International Monetary Fund which is overseeing an €85bn bailout for Ireland.
The Government initially takes a 49.9pc stake in AIB through ordinary shares and the stock holding will rise to 92pc when the bank's Polish division is sold to Spanish banking giant Banco Santander next year.
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 next year.
The Government's aim is to eventually re-float AIB on the stock market several years down the line or sell the institution to another bank when recovery kicks in.
Proceedings were finalised in the Dublin High Court behind closed doors.
The dramatic move was enabled under Ireland's brand 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 new rules into law two days ago.
AIB said the equity will ensure the bank meets the year-end regulatory capital requirements of the Central Bank of Ireland.
In a statement, the AIB board of directors acknowledged the continued support of the Minister for Finance and the Irish State.
"It notes its new duty under the Act to have regard to the public interest in the performance of their functions and, if that public interest conflicts with the best interests of the company, that the new statutory requirement provides for the public interest to prevail," it said.
Labour's Joan Burton said the transfer of €3.7bn to AIB was the last act of a disastrous year for the Government's banking policy.
"This day last year the board of NAMA (National Asset Management Agency) was announced and the minister was confidently claiming that he had sorted out the banks and that the four billion euro he was giving to Anglo Irish would be sufficient to save that bank from insolvency," said Ms Burton, deputy party leader and finance spokeswoman.
"Now, one year on, all those confident ministerial claims have turned to ashes. Not a single element of his strategy has worked.
"The cost to Irish taxpayers has escalated enormously and his bank bailouts now leave a massive legacy of additional debt on the national exchequer which will have to be serviced at huge cost in years to come."