By Kevin Smith
DUBLIN, Dec 21 (Reuters) - The Irish government will invest 5.5 billion euros ($7.68 billion) in the country's three main banks, nationalising Anglo Irish Bank after a loan scandal sent its shares crashing to a record low.
The government said on Sunday it would invest 2 billion euros each in market leaders Bank of Ireland and Allied Irish Banks giving it 25 percent voting rights in those lenders.
The government will also make initial 1.5 billion euros investment in Anglo Irish Bank giving it 75 percent control of the niche commercial lender.
In return, the banks will be expected to boost lending to small- and medium-sized businesses by 10 percent next year and increase lending to first-time buyers by 30 percent. There will also be a new code of practice for business lending.
'The objective of these decisions is to ensure that the financial system in Ireland meets the everyday financial needs of individuals, businesses and the overall economy,' Prime Minister Brian Cowen said in a statement.
The government said it would be prepared to make further capital available to Anglo Irish and said both Bank of Ireland and Allied Irish Banks had signaled interest in raising up to 1 billion euros each in additional capital, which the state would be prepared to underwrite.
Pressure on the government to recapitalise the banks intensified this week after shares in Anglo dropped to a record low of just 19 euro cents following revelations its chairman, Sean FitzPatrick, had kept shareholders in the dark about 87 million euros ($121.4 million) worth of loans he had received from the bank.
FitzPatrick, Anglo's chief executive David Drumm and a non-executive director resigned over the revelations, which have cast a pall over the entire industry as well as the financial regulator, which discovered the loans in January.
The government's investments, via perpetual preference shares, are expected to take place in the first quarter of next year with Anglo's 1.5 billion euro capital top-up likely coming after an extraordinary general meeting in mid-January.
The government said the state would receive an annual dividend of around 500 million euros, either in cash or ordinary shares, from its investments.
All three banks may redeem the preference shares within five years at the issue price or after five years at 125 percent of the issue price. The shares are non-convertible and will be treated as core tier one capital by the regulator.
All of the investments are subject to European Union approval.
($1=0.7164 Euro)
(Editing by Gary Crosse)
((Writing by Carmel Crimmins; carmel.crimmins@reuters.com; Reuters Messaging: carmel.crimmins.reuters.com@reuters.net; +353-1-500-1529)) Keywords: FINANCIAL/IRELAND (Multimedia versions of Reuters Top News are now available for: * 3000 Xtra: visit http://topnews.session.rservices.com * BridgeStation: view story .134 For more information on Top News: http://topnews.reuters.com) COPYRIGHT Copyright Thomson Reuters 2008. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
DUBLIN, Dec 21 (Reuters) - The Irish government will invest 5.5 billion euros ($7.68 billion) in the country's three main banks, nationalising Anglo Irish Bank after a loan scandal sent its shares crashing to a record low.
The government said on Sunday it would invest 2 billion euros each in market leaders Bank of Ireland and Allied Irish Banks giving it 25 percent voting rights in those lenders.
The government will also make initial 1.5 billion euros investment in Anglo Irish Bank giving it 75 percent control of the niche commercial lender.
In return, the banks will be expected to boost lending to small- and medium-sized businesses by 10 percent next year and increase lending to first-time buyers by 30 percent. There will also be a new code of practice for business lending.
'The objective of these decisions is to ensure that the financial system in Ireland meets the everyday financial needs of individuals, businesses and the overall economy,' Prime Minister Brian Cowen said in a statement.
The government said it would be prepared to make further capital available to Anglo Irish and said both Bank of Ireland and Allied Irish Banks had signaled interest in raising up to 1 billion euros each in additional capital, which the state would be prepared to underwrite.
Pressure on the government to recapitalise the banks intensified this week after shares in Anglo dropped to a record low of just 19 euro cents following revelations its chairman, Sean FitzPatrick, had kept shareholders in the dark about 87 million euros ($121.4 million) worth of loans he had received from the bank.
FitzPatrick, Anglo's chief executive David Drumm and a non-executive director resigned over the revelations, which have cast a pall over the entire industry as well as the financial regulator, which discovered the loans in January.
The government's investments, via perpetual preference shares, are expected to take place in the first quarter of next year with Anglo's 1.5 billion euro capital top-up likely coming after an extraordinary general meeting in mid-January.
The government said the state would receive an annual dividend of around 500 million euros, either in cash or ordinary shares, from its investments.
All three banks may redeem the preference shares within five years at the issue price or after five years at 125 percent of the issue price. The shares are non-convertible and will be treated as core tier one capital by the regulator.
All of the investments are subject to European Union approval.
($1=0.7164 Euro)
(Editing by Gary Crosse)
((Writing by Carmel Crimmins; carmel.crimmins@reuters.com; Reuters Messaging: carmel.crimmins.reuters.com@reuters.net; +353-1-500-1529)) Keywords: FINANCIAL/IRELAND (Multimedia versions of Reuters Top News are now available for: * 3000 Xtra: visit http://topnews.session.rservices.com * BridgeStation: view story .134 For more information on Top News: http://topnews.reuters.com) COPYRIGHT Copyright Thomson Reuters 2008. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.