The prospect of a partial nationalisation of the Republic’s two biggest banks looms today following a spectacular crash in their shares.
Allied Irish Bank (AIB) and Bank of Ireland's (BoI) attempts to raise €1bn under the Irish Government's recapitalisation plan now appear doomed, after share values plummeted yesterday to record lows.
The dramatic fall in share prices coincided with a further raft of resignations by senior Anglo Irish Bank executives.
The Government will today push through a law to bring Anglo into public ownership, amid intense speculation that a similar approach will have to be adopted with the other two banks.
Following a disastrous day on the markets, AIB's stock plunged 58.6% to 60c, giving it a market value of just €528m; while Bank of Ireland tumbled 54.6% to 34c, leaving it with a value of €341.4m.
Shares in Irish Life & Permanent's halved in value to €1.10.
The stockmarket bloodbath is set to continue today as international confidence in Ireland's banking sector evaporates.
“The market seems to have given its verdict and it looks like their plans to raise the money are dead in the water,” a senior Dublin-based stockbroker said.
The Government is understood to be “constantly monitoring the situation” in AIB and Bank of Ireland.
Last night, sources said ministers and officials were well aware of the growing market perception that a nationalisation was imminent.
Market experts said even the Government's plan to inject €2bn into AIB and BoI over the coming years was now also under threat.
Under that scheme, the State was looking to buy so-called “preference shares”, which carry an annual dividend but, unlike ordinary shares, do not give ownership rights.
The UK government recently acquired £5bn-worth of preference shares in Royal Bank of Scotland, but the lender yesterday opted to convert the shares into ordinary shares.
Investors are now betting the Government will have to buy ordinary shares in AIB and BoI. This would seriously dilute existing shareholders' stakes.
The collapse in bank shares came after a day in which the loans scandal engulfing Anglo Irish Bank claimed the scalps of five more board members.
In a joint statement, the departing directors expressed their “disappointment over the management of loans to the former chairman” as they stepped down.
BoI also confirmed its chief executive, Brian Goggin, would retire this summer, a year ahead of schedule.
Minister Lenihan yesterday asked former BoI boss Maurice Keane to join Anglo's board as a non-executive, as the Government prepared to rush through emergency legislation, by tonight, to pave the way for the nationalisation of the ailing bank. There was intense speculation that the Anglo legislation would not be the Government's last act to rescue the banking system.