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State ownership of AIB 'impossible to avoid'

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Finance Minister Brian Lenihan with NTMA's head of banking Michael Torpey following the banking statement yesterday

Finance Minister Brian Lenihan with NTMA's head of banking Michael Torpey following the banking statement yesterday

Finance Minister Brian Lenihan with NTMA's head of banking Michael Torpey following the banking statement yesterday

THE State could soon own more than 90pc of AIB after Finance Minister Brian Lenihan yesterday announced plans to effectively nationalise Ireland's second biggest bank.

The shock announcement was triggered by revelations that AIB is facing massively higher losses on the loans it is due to transfer to Nama.

AIB was originally pencilling in losses of about 30pc on the loans it is sending to Nama, but the Financial Regulator now believes the bank could face losses of 60pc on the remainder of its Nama portfolio.

Those higher losses prompted the regulator to up AIB's capital target from €7.4bn to €10.4bn.

The bank will not be able to raise the extra €3bn from the market, so it will have to be put in by the Government.

That could see the State owning 92.5pc of AIB if the bank can't get any private investment, analysts said last night, adding that it was now "impossible" for AIB to avoid majority state ownership.

Shares in the embattled bank fell more than 30pc in morning trading. "We were expecting something on AIB but we didn't expect anything like this," one analyst said, describing the stock markets' "shock" at yesterday's announcement.

AIB is now preparing to launch a €5.4bn equity raising in November, pricing the shares at 50c a piece. The State's National Pension Reserve Fund (NPRF) has agreed to pick up any shares not bought by private investors.

The NPRF will make up the shortfall by putting in €3.7bn of fresh state cash and converting its €1.7bn so-called "preference shares" into ordinary shares in the bank.

AIB's shares traded below 50c for most of yesterday. "Given where the share price has gone, I'd expect there isn't going to be huge private interest," one market source said.

Central Bank Governor Patrick Honohan, however, stressed that comparing the NPRF's investment in AIB with Anglo's bailout was like comparing "apples with oranges" since the AIB money could be recovered over time.

Irish Independent


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AIB timeline

February 19, 2007: Allied Irish Banks' share price peaks at €23.95. May 15, 2008: Despite an increase in impaired loans, AIB is "satisfied that our exposures are well-structured". June 30, 2008: AIB raises its interim dividend by 10pc to 30.6c. September 15, 2008: In New York, the investment bank Lehman Brothers collapses. Stocks fall worldwide and credit markets seize up. September 30, 2008: Finance Minister Brian Lenihan announces a blanket guarantee of deposits in Irish banks. October 23, 2008: "We would rather die than raise equity," says AIB's chief executive Eugene Sheehy despite estimates it will write down €4.5bn worth of bad loans by 2011. December 22, 2008: The Government pumps €2bn into AIB in exchange for a 25pc stake in the bank. February 11, 2009: The Government recapitalises AIB and Bank of Ireland to the tune of €3.5bn each. The taxpayer now holds 36pc of AIB. March 2, 2009: AIB posts profits of €885m. May 1, 2009: CEO Eugene Sheehy, finance director John O'Donnell and group chairman Dermot Gleeson announce they will resign. May 13, 2009: Eugene Sheehy tells shareholders "the bank was wrong" on the economy amid angry scenes at the AGM. September 16, 2009: The bank says that the 30pc average discount on NAMA loans estimated by Mr Lenihan will "exceed the estimated maximum for AIB". November 18, 2009: Colm Doherty is appointed AIB's new chief executive. The bank finally bows to government pressure and caps his salary at €500,000. November 30, 2009: AIB formally proposes to enter NAMA. March 2, 2010: AIB posts a loss of €2.3bn for 2009. March 30, 2010: NAMA imposes a 43pc discount on the first round of loans from AIB. The Financial Regulator gives the bank until the end of the year to raise €7.4bn or face nationalisation. July 19, 2010: AIB takes a 48.5pc discount on the second round of loans transferred to NAMA. September 10, 2010: AIB sells its stake in the Polish bank WBK Zachodni to Santander for €3.1bn. September 20, 2010: Fexco buys AIB's Goodbody stockbrokers for just €24m. September 30, 2010: The bank guarantee is extended. Mr Lenihan says AIB will need another €3bn, likely pushing the Government's stake in the bank above 90pc and de facto nationalisation.