The Irish Government will take a hands-on, day-to-day role in the running of AIB in return for yet another bail-out for the bank.
AIB’s capital bill – that is, the amount of money it needs to operate, and thus the amount the Government needs to give it – is still nearly EUR8 billion. So, the Government intends to buy a controlling interest in the bank, underwritten by funds from the National Pension Reserve Fund Commission.
The Minister for Finance, Brian Lenihan, said that “The Financial Regulator determined last March that AIB must raise €7.4bn by the end of 2010 to meet its capital requirements. AIB has already announced the sale of its Polish subsidiary BZWBK, expected to generate capital of €2.5bn.”
But, because of a massive write-down on the value of landbanks in which AIB had invested – landbanks which are now worth virtually nothing – the Central Bank has decided that an additional amount of E3bn will be required to bail-out AIB, leaving the bank still needing E7.9bn.
The Minister said that “this capital requirement will be met through a placing and open offer to shareholders of AIB shares to the value of €5.4bn.”
Meanwhile, AIB’s other main subsidiary, M&T Bank in the U.S., as well as any other assets necessary, will be sold off to bridge the gap.
AIB’s current executive chairman, Dan O’Connor, and the bank’s managing director, Colm Doherty, will both step down. Doherty will leave within a couple of weeks, while O’Connor will stay on until the end of the year. The new executive chairman and managing director will work closely with a team of Government-appointed consultants from PriceWaterhouseCooper.
Speaking about the bailout, Lenihan said that, “There will be a very substantial spike in Ireland’s General Government Deficit in 2010 as a result of the capital support that we are providing to our banking system, totalling almost 20% of GDP. On a purely headline basis our General Government Deficit for 2010 will be around 32% of GDP.”
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