THE PROSPECT of the Government taking majority control of the State’s largest bank, Allied Irish Banks (AIB) is almost inevitable as the bank needs to raise a further €2-€3 billion to cover higher expected losses.
The latest bailouts, to be unveiled this morning, will push the cost of the banks, including Anglo Irish Bank to the taxpayer closer to the €40 billion mark.
In addition to providing a final estimate of about €29 billion for the cost of Anglo Irish Bank, the Central Bank will announce the need for a further €2 billion to €3 billion in capital at AIB.
This is in addition to the €7.4 billion target set in March which it needs to raise this year.
AIB’s funding bill is rising due to higher than expected discounts on €23 billion in loans being sold to the National Asset Management Agency (Nama), which is removing the most toxic loans from the banks.
The estimate of the cost of Anglo to be announced by the Central Bank is expected to be about €29 billion, with the possibility that it could rise above €30 billion, but shy of the €35 billion estimate of ratings agency Standard Poor’s, in a worst-case scenario where the property market declines further.
As part of the latest bailouts for the banks, Minister for Finance Brian Lenihan is expected to sanction the immediate transfer of the remaining €20 billion in Anglo loans to be sold to Nama.
In an interview published in today’s Financial Times, the Minister said the Government had no choice but to stand behind Anglo to protect the State from the failure of the nationalised bank.
The Government will indicate its intention to convert last year’s €3.5 billion bailout of AIB into a larger, direct stake in the bank.
The higher capital requirement facing AIB will increase pressure on the bank to raise the cash by its own means without State support, raising the probability that the Government will take control of a fourth Irish financial institution.
The State owns 18.7 per cent of AIB. Should the bank fail to meet the funding target from selling businesses and new shares, this stake could increase above 50 per cent, as the Government moves to prop up the bank.
The Minister has decided to inject further capital into AIB on concerns that the market will turn against that bank.
The bank was engaged in eleventh-hour talks last night to try to reduce the Central Bank’s capital demands.
Final estimates on the costs facing Anglo and AIB are being disclosed in an attempt to ease market fears as to whether the Government can cover the cost of the bailouts. It had been expected the announcement would be made this evening, but it was brought forward because of market sensitivities.
Bank of Ireland and EBS building society are not expected to require any further capital.
State borrowing costs stabilised yesterday but remained close to record highs amid concerns about the Government’s ability to pay for the banking clean-up with the biggest budget deficit in the EU. Economics commissioner Olli Rehn maintained pressure on the Government to step forward with a four-year austerity plan with specific reform and budget measures but declined to say where the cuts should be made.
Mr Rehn published legislation to strengthen the EU’s economic system with measures to impose semi-automatic fines on persistent rule-breakers, a plan which, he said, would prevent a repeat of the property bubbles in Ireland and Spain.
The Dáil last night backed the extension of the bank guarantee for a further three months ahead of the lapse at midnight. The vote was 83 to 74, with Fine Gael and Labour opposing the plan.
A special Cabinet meeting to discuss the cost of Anglo and the State’s future role in AIB began at 7.30 pm and finished at 10.15 pm.