Belfast Telegraph

£10bn rescue package for Irish banks

The Dublin Government last night announced a £10bn rescue fund for the banking sector.

The surprise announcement came after intense weekend talks involving senior government members and banking advisers.

In a statement last night, the Government said it may use some of the €18bn in the National Pension Reserve Fund to pump money into the ailing banking sector, alongside investment from existing shareholders and private investors.

The fund is available to the banks included in the €440bn bank guarantee scheme announced in September.

It is understood the collapse in Anglo Irish Bank's share price last week forced the Government to finally produce a recapitalisation plan. On Friday, the bank submitted a proposal that would have seen the Government guarantee an attempt by the bank to raise funds from the stock market.

Mr Lenihan said last night the Government was still considering its options on how exactly investment in the sector would be structured. If pension fund money is used, legislative changes will be made to enable cash to be released.

The statement said the Government's investment could take the form of preference shares, which would guarantee the State a dividend, or ordinary shares, which do not carry a dividend but carry voting rights.

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It added that taxpayers would be safeguarded and any investment would also be made on a non-discriminatory basis, "having regard to the systemic importance of the institution, the importance of maintaining the stability of the financial system in the State, and the most effective and economical use of resources available to the State and each credit institution's particular requirement for capital".

It also said that existing shareholders are expected to have the right to subscribe for new capital on the same terms as the Government.

Mr Lenihan added that the banks will be dealt with on a case-by-case basis.

"Well, of course, some financial institutions are so embedded in our economy -- in terms of their borrowing and deposits -- that they are of systemic importance to our economy and it's very important that our banking system is seen to sustain our economy," he said.

"And if capital is required to demonstrate that confidence, capital will be provided, but on strict terms and on terms that will ensure a full return to the taxpayer and pension fund."

Last night, analysts said the statement lacked clarity and raised as many questions as it answered.

They also questioned what kind of terms and conditions would be applied to the use of the fund, considering that private equity firms typically take a short-term view on investment and look for big returns.

Fine Gael's Richard Bruton said the statement on the banks was "sketchy on detail" and added "little new" to the Government's "unconvincing plans for recapitalisation of our banks".

"Two-and-a-half months after the announcement of the banks guarantee, other countries are much further down the road in recapitalising their banks than we are, yet tonight we got another statement lacking in crucial detail," he said.

Labour Party finance spokesperson Joan Burton said the short-term goal had to be to get credit rolling to businesses.

However, the country's largest business representative group, IBEC, welcomed the announcement.

IBEC director general Turlough O'Sullivan said: "A strong and competitive banking sector is vital if Ireland is to succeed and prosper in these very challenging economic times.

"Given the unprecedented global financial turmoil and the knock-on effect that this is having on jobs and the wider economy, it is necessary for the Government to take this decisive action," he said.

It is possible emergency legislation will have to be passed this week to give effect to the recapitalisation, because the Dail is due to break until the end of January.

Belfast Telegraph