Ireland’s two largest banks in Government bailout
Allied Irish Bank (AIB) and Bank of Ireland are set to receive €3.5 billion each from the Irish Government and are in discussions on providing insurance against potential losses from bad debts arising from constructions projects and land deals.
Under the terms, should any loans have to be written off, the Government will take 80% of the value of the insured amount and the balance will be transferred to taxpayers, according to a report in The Sunday Times.
In return, the banks are expected to raise a further €1 billion from shareholders in rights issues that will be underwritten by the Government.
Shares in the two banks have plummeted over recent times over concerns that they would have to be nationalised.
Last month, the country’s third largest bank, Anglo Irish, was nationalised to prevent it from collapse.
The Irish Government said under the circumstances, nationalisation was the only option.
If it had been declared insolvent, the Government would have been left with approximately €100 billion of liabilities after guaranteeing all deposits in Irish banks last year.
Irish banks have been hit by the global credit crunch and, in particular, the slump in the country’s property market. This has resulted in a fall in the value of investments linked to the property market.