THE CABINET is expected to formally approve a recapitalisation plan tomorrow which will see the Government invest about €8 billion in Bank of Ireland and AIB.
Both banks have been involved in intense discussion with the Department of Finance over the course of the weekend on the details of the deal and the level of funds that will be involved.
They have been on notice since late last week that the injection, which involves much larger sums than the scheme announced last month, will be signed off by the Government tomorrow.
The development came as talks between the social partners on an economic recovery programme entered a crucial phase last night, with the two sides attempting to finalise agreement on a €2 billion package of spending cuts this year.
The talks adjourned shortly after 9pm and will resume today.
It is understood Government officials are to prepare positions on a number of areas including pension protection, taxation, corporate governance and employment initiatives.
Union sources said they were awaiting a formula of words from the Government giving a commitment to an equitable approach to tackling the problem.
If agreed, such a formula would trigger other talks on cutting exchequer spending, including the public sector pay bill.
The issue of pay was not addressed in last night’s talks.
Taoiseach Brian Cowen met a number of senior trade union leaders over the course of yesterday.
Sources in the Department of Finance said that the full details of the recapitalisation scheme would be announced publicly either tomorrow evening or on Wednesday, in both cases after the markets have closed.
The deal will include both an enhanced injection of funds and an insurance scheme whereby the State will underwrite the banks against potential losses on bad property debts.
The new State investment in AIB and Bank of Ireland is likely to be in the order of €8 billion, which is a significantly higher sum than the €2 billion investment by way of preference shares announced in the original recapitalisation plan in December.
One of the major outstanding issues is whether or not the injection of funds will be split evenly between the two banks.
The Government has insisted in its discussions that both should receive in excess of €4 billion in injections. Sources said that AIB has argued against that level of capitalisation.
It is understood the Government wants the larger scheme to go ahead so as to avoid a situation whereby the emergence of bad debts in the future would require a further injection of State equity.
The insurance scheme will cover outstanding loans on development land on part-completed projects. The banks will write off a portion of the bad debts on these speculative property loans, with the State insuring the balance.
Trade unions have ruled out any cuts in core pay for more than 350,000 staff in the public service. However, they have left the door open for discussions on other areas of the overall public sector pay bill such as overtime or career breaks.
Siptu president Jack O’Connor said if there was to be an agreement it would be contingent on the better-off contributing in line with their ability to do so.
He said this would have to be done this year.
However, the director general of the employers’ group Ibec, Turlough O’Sullivan, said yesterday that calls for an immediate increase in taxes were “wrong”.
