Ireland takes control of Allied Irish in £3.1bn move

Published on Wednesday 22 December 2010 21:27

THE Irish government yesterday took control of the country's second-biggest lender, Allied Irish Banks (AIB), after pumping in a further €3.7 billion (£3.1bn) of taxpayers' money.

The cash injection gives the Irish state a 49 per cent stake in AIB, once Ireland's biggest bank, but this will rise to 92 per cent when lucrative divisions are sold off next year.

The move, which effectively nationalises AIB, comes after a string of other Irish lenders were taken into government hands last year, including Anglo Irish, Irish Nationwide Building Society and EBS Building Society.

Irish finance minister Brian Lenihan said the taxpayer injection was vital.

"This capital is essential to allow AIB to fulfil its role in supporting the Irish economy," he said.

The Irish banks, which bought heavily into the country's property boom, ran into trouble when the housing and development market crashed. The turmoil forced the Irish government to go cap in hand to the European Union and International Monetary Fund (IMF) for a €85 billion bail-out.

However, analysts warned that despite yesterday's move, AIB will need to find a further €6.1bn of capital before the end of February. Lenihan admitted that this too will have to be found from government coffers.

"We have to have a banking system in this country and it has to be brought into public ownership. I always made it clear that would be a last resort and we are now engaged in that last resort," he said.

Lenihan also raised the spectre of propping up Bank of Ireland and bancassurer Irish Life & Permanent next year if they are unable to raise sufficient capital themselves.

But troubled European economies such as Ireland may find an unlikely friend in China after its foreign ministry yesterday said it would be willing to help countries in the eurozone return to economic health. China would also support an IMF rescue package for the economic zone, a spokesman said, as Europe is one of the most important areas for China's foreign exchange investments.