Irish gov't to inject €7 billion into ailing banks
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The Irish government says it will bail out the country's top two banks, Allied Irish Bank and Bank of Ireland, in exchange for their commitment to boost lending to businesses, cut the pay of top executives and defer home repossessions.
AFP - The Irish government said Wednesday it was injecting seven billion euros (nine billion dollars) into the country's top two banks, Allied Irish Bank (AIB) and Bank of Ireland (BofI).
They will each receive 3.5 billion euros "in view of the continuing turmoil in global financial markets," Finance Minister Brian Lenihan said, in return for shares paying out a fixed dividend.
AIB and BofI have agreed to boost lending to businesses, hold back on trying to repossess homes until their mortgage holders are 12 months in arrears and also to cut the pay of senior bank executives.
The proposed cash injection is a significant increase on the terms of the bank recapitalisation plan announced in December, when Lenihan said both AIB and BofI would receive two billion each of taxpayers' money.
Under December's scheme, the government also planned to inject 1.5 billion euros (1.9 billion dollars) in Anglo Irish Bank, but last month ministers nationalised the institution following a loan scandal.
No such plans were in place for AIB and BofI, Lenihan stressed Wednesday, saying: "The state does not intend to take control of these banks."
The government will not hold ordinary shares in the banks but will instead receive preference shares for its in core tier one capital investment with a fixed dividend of eight per cent payable in cash or ordinary shares.
They will have the option to buy ordinary shares in five years time at a predetermined price, which could provide a significant return if the share price rises between now and then.
Ireland was one of the first countries to respond to the global credit crisis last September with a two-year unlimited guarantee scheme for six banks that involves a contingency liability of 485 billion euros.
Ministers are in talks with the remaining three institutions covered under the scheme -- Irish Life and Permanent, Educational Building Society and Irish Nationwide Building Society -- about their capital positions.
Amid increasing public concern about bank bonuses, Lenihan said both AIB and BofI have accepted that "the pay of senior executives will be curtailed."
Total remuneration for all top bosses will be cut by at least 33 percent, and they will not receive bonuses for 2008 and 2009, while fees for non-executive directors will be cut by at least 25 percent.
As a priority, the government is also to consider how to deal with the banks' high-risk loans, the so-called "toxic assets."
"The Irish financial institutions have little or no exposure to the sort of complex financial instruments which are weighing on the balance sheets of many banks internationally," Lenihan said.
"However, Irish institutions have engaged in lending for land and property development, which exposes them to specific risk at a time of falling property prices and difficult economic conditions."
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