“The government has finally quit dithering,” said Joe Brennan in The Irish Independent. Ireland is to inject €5.5bn in new capital into its three biggest banks in an effort to “prevent the system deteriorating into a bunch of zombie banks”. In return, it will end up with a 25% stake each in Bank of Ireland (BoI) and Allied Irish Banks (AIB) and 75% of the deeply-troubled Anglo Irish Bank. “But this is only the start of something that should have happened months ago.”
Yes, agreed Breakingviews’s George Hay; it’s clear that €5.5bn is only a “short-term fix”. The government will underwrite a rights issue from BoI and AIB next year, but any further investment in Anglo Irish is likely to have to come from the state. The amounts involved could be substantial. “[Stockbroker] NCB calculates that if property write-offs are in line with those of Barclays [in 1991-1993] the three banks will need to raise €13.4bn by December 2011,” said John Murray Brown and John O’Doherty in the FT. And given the outsized property and construction loan books at these banks – 26% of total loans at BoI, 37% at AIB and a huge 88% at Anglo Irish – it’s far from certain that Barclay’s experience is the worst-case scenario.
The recapitalisation marks an especially inglorious end for Anglo Irish, which “rode the Celtic tiger” to a “scarcely credible” €13.3bn market cap over the past decade, said George Garvey, also in The Irish Independent. The firm was already under attack over the quality of its loan book when chairman Sean Fitzpatrick was forced to resign last week after it emerged that he had €87m in personal loans from the firm that had never been disclosed; the chief executive also followed him out of the door. “The past few days have destroyed any lingering hopes it may have had of surviving as an independent institution.”