Taxpayer is picking up ailing Anglo Irish Bank
Dramatic move seen as the only way of ensuring disgraced lender's viability
after the damage done to its reputation in the past number of months, Mr Lenihan said.
The loan scandal claimed the scalps of Mr FitzPatrick, fellow director Lar Bradshaw, chief executive David Drumm and finance director Willie McAteer.
The Government said the move, which marks the first time the Government has owned a bank since 2001, was taken to ensure the continued viability of Anglo -- which has loans of about €100bn on its balance sheet.
It also added that a new board would be put in place apart from the newly appointed chairman Donal O'Connor.
Mr Lenihan denied market speculation that there had been a last-minute dispute over the appointment of a new chief executive.
The Irish Independent reported yesterday the head of Anglo's UK arm, Declan Quilligan was set to be appointed to the role.
"The funding position of the bank has weakened and unacceptable practices that took place within it have caused serious reputational damage to the bank at a time when overall market sentiment towards it was negative," Mr Lenihan said.
He added that a planned €1.5bn recapitalisation of Anglo, which had been previously on the cards, was not now appropriate although he added that he remains fully committed to the funding proposals for Allied Irish Bank and Bank of Ireland.
The Government also said that existing shareholders rights will be respected in the process and the relevant legislation will be used to determine compensation as appropriate although a similar move in Britain to nationalise Northern Rock has caused much shareholder unrest.
When questioned how businessman Sean Quinn, who with his family owns 15pc of the institution, might fare from compensation Mr Lenihan said: "We're not guaranteeing Sean Quinn anything," adding that Mr Quinn may owe Anglo some money which must be repaid.
Mr Lenihan would not be drawn on the cost of the move but he said it erased the need for the €440bn bank guarantee scheme to be utilised in the case of Anglo.
Anglo, whose shares slumped to a year low of 12c just before Christmas from highs of €11, has been dogged by bad news for months and the institution, which is a commercial lender, has been long considered the most exposed to the troubled property sector.
At the height of the boom its market capitalisation was over €18bn. It closed trading yesterday evening with a market value of €165m
Just hours before news of the nationalisation, Financial Ombudsman Joe Meade had lashed out at Mr FitzPatrick over the secret loans and accused him of deception.
"Sean FitzPatrick deceived, when he was chief executive and chairman, his board, shareholders, general public and staff," he said in an interview with TV3 last evening.
"If this apparent deception is indicative of how customers were treated, it could explain why the number of complaints to my office (regarding the financial sector) have gone up."
Labour's Joan Burton last night said that the nationalisation was a "calamitous event" for the Irish taxpayer and was doing enormous damage to Ireland's international reputation, as the Government "blundered from one crisis to another."
She said the Dail should be recalled immediately.