Translated material
Five years to fix
Ireland bails out national banks
The Irish government will invest €5.5 billion in three of the country's systemically important banks, receiving in exchange blocks of preferred shares in these financial institutions. Bank of Ireland and Allied Irish Banks will each receive €2 billion. They will provide the authorities with 25% packages of “prefs”, for which they will pay 8% per annum. To a third financial institution, Anglo-Irish Bank, the government will provide €1.5 billion in exchange for preference shares that will pay a dividend of 10% per annum. Ownership of the preferred shares of this bank will give the new owner the right to control 75% of the votes of this credit institution. Under the terms of the deal, all banks can buy shares from the government at the issue price over the next five years. Then the buyback price will increase by 25%.Irish Finance Minister Brian Cowen expressed hope that the cabinet's actions to recapitalize the largest players in the banking sector will be a positive signal to the market about the stability of the country's financial system. In the short term, this is what happened: yesterday, in a short period of time, at trading on the London Stock Exchange, quotations of securities of Bank of Ireland, Allied Irish Banks and Anglo-Irish Bank increased by 41.3, 17.98 and 7.27%, respectively.
As you know, Ireland was one of the first countries to come to the aid of its banking sector due to the global credit crisis. At the beginning of October, a law was adopted to provide a full state guarantee for private deposits (over 440 billion euros were covered by the guarantee). Dublin announced new steps to reorganize its banks last Sunday. The authorities confirmed that they are ready to provide liquidity to six systemically important financial companies in the amount of 10 billion euros from the accounts of the National Reserve Fund (in total, according to official data, it has 18.7 billion euros). The government will expect applications from other banks until the end of this year.
Unlike most competitors, Irish banks show good profitability and asset growth indicators against the backdrop of the crisis. Thus, Anglo-Irish Bank's profit for the financial year ended September 30 decreased by only 34%, to 664 million euros, compared to a year earlier. The size of assets during this period increased by 4.5%, from 96.7 billion to 101.32 billion euros. Bank of Ireland's profits for the six months ended September 30 also showed a decline of around 33% to €611 million compared with the same period last year. The increase in assets during this time was 2% - from 199.9 billion to 204.3 billion euros.
Despite this, experts believe it is necessary to strengthen the Irish banking system due to the economic downturn. According to the forecasts of the country's Ministry of Finance, next year the GDP decline will be 4%.