Ireland 'nationalises' bank after further cash boost

Allied Irish Bank was effectively nationalised yesterday after the Irish Government got the green light to pump in another 3.7bn euros (£3.1bn) of taxpayers' money.

The High Court signed off the massive cash boost lined up by Finance Minister Brian Lenihan under tough laws imposed this week.

The money means the nation now has a 49 per cent stake in AIB – once Ireland's biggest bank. This will soar to 92 per cent when lucrative divisions of the finance group are sold off next year.

Mr Lenihan said the billions of taxpayers' money was essential for AIB to fulfil its role in the economy.

The Minister said 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 country's national pension reserve fund, has been agreed by the European Union and the International Monetary Fund which is overseeing an

85bn euro (72bn) bailout for Ireland.

The Irish Government initially takes a 49.9 per cent stake in AIB through ordinary shares. The holding will increase to 92 per cent 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 stop trading ordinary shares on stock exchanges in London and Ireland.

AIB has also been warned it must raise another 6.1bn euro (5.1bn) by February 28.

The Government hopes to re-float AIB in several years' time or sell it 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 gave sweeping powers to the Finance Minister to intervene directly in running the banks.

President Mary McAleese signed the rules into law three days ago.

AIB said the move would ensure the bank meets the year-end regulatory capital requirements of the Central Bank of Ireland.

In a statement, AIB 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 euro to AIB was the last act of a disastrous year for the Government.

"This day last year the board of Nama 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."