10bn recapitalisation of Irish Banks announced

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Just heard it on the 8pm news on the radio, anyone got more info?
 
"the Government has decided either through the National Pensions Reserve Fund or otherwise and subject to terms and conditions, to support, alongside existing shareholders and private investors, a recapitalisation programme for credit institutions in Ireland of up to €10 billion. "

In principle existing shareholders will be expected to have the right to subscribe for new capital on the same terms as the Government.

"State investment will be assessed on a case-by-case basis in an objective and non-discriminatory manner, having regard to the systemic importance of the institution, the importance of maintaining the stability of the financial system in the State, and the most effective and economical use of resources available to the State and each credit institution’s particular requirement for capital. "
 
It seems that the government is supporting a fund up to €10b. Does that mean that the government is going to contribute up to €10b or is that the total?

I am glad to see the "systemic importance of the institution" as a criterion.

Only AIB and Bank of Ireland are of systemic importance.

A journalist has told me that the plan is to nationalise Anglo Irish Bank. This would not be consistent with the above.

Brendan
 
Brendan said:
A journalist has told me that the plan is to nationalise Anglo Irish Bank. This would not be consistent with the above.
Click to expand...
I agree with you, but I guess that Anglo will be the first to go and so will be bailed out on the:
"the importance of maintaining the stability of the financial system in the State"
catch-all clause. As evidenced in Japan, the UK, the US and the rest of Europe, the authorities persist in believing that there are only one or two bad apples and that the rest of the crop will save itself. So they save the first one or two to go bust (depending on the size of their banking sector). Then they realise that nearly all the banks are insolvent and panic, but they have no money left to put proper solutions in place and force the restructuring that is required leading to zombie banks that will survive, but that will not function.
 
Brendan said:
A journalist has told me that the plan is to nationalise Anglo Irish Bank. This would not be consistent with the above
Click to expand...

With the guarantee in place already we will be picking up the tab for anglo in any case. The bank is in effect worthless and will probably nationalised in full like northern rock. The government could then wind down its property portfolio and use it as an investment vehicle for its planned programme for R&D, export oriented businesses.
 
Good point

Nationalise Anglo because it will cost so little to do anyway.

Don't put any capital into it. Just wind down the loan book. There might well be a surplus at the end of the process, so the government gets a payoff.

That's good as long as they don't feel obliged to recapitalize it.

What's the story with the Anglo pension fund? If it's a defined benefit scheme, is there a funding deficit?

Brendan
 
Its wishy washy the details.

They say perhaps ordinary shares perhaps preference shares??

As an owner of AIB / BOI CFD's im assuming we will also be offered to subscribe?

Why should anglo be bailed out for there free wheeling antics the people of ireland do not require the risks there are only two banks required AIB/BOI to be frank we should shove the rest.

More questions than answers..... Quite typical of this government!
 
To give them a bit of credit they have played it quite well. The bad debts are going to arise with or without the recapitalisation and its not going to be an instant cure.

At least they waited to see what was working in other countries first and then allowed the bank share prices to fall to the floor so their negotiating position has weakened. The govt are now getting much more 'bang for their buck'. If they had acted earlier they would have got a smaller share of the banks when Anglo & BoI were valued at €2/3 rather than sub €1.
 
I think this is a positive move and if things go right there should be a good return on the investment. It makes more sense than allowing the future profits of the banks to be given over to whoever signs the biggest cheque. At least now the state should see the money when the economy recovers.
 
I'll be very interested to see how this pans out.

It's quite vague, but then I suppose they have to keep their options open.

If Anglo Irish is nationalised, will it have to change its name?
 
Is €10bn enough? I suspect that this will just be the government/state share of the total recapitalisation with Irish investment managers and private equity taking up the balance.

Will the senior management or the boards of the banks pay with the jobs? Will there be any accountability?
 
If the government gives money/capital to a bank they receive shares in the bank in return. Does this mean that the current shareholders shares are worth less? How does it work. Also the document says the current shareholders can also purchase shares, why would they want to do that? Because the shares are cheap or to protect the bank and their own shareholding? Will the government be allowed to have someone on the board in return. Is this not just throwing money at institutions that have been run incompetently and allowing them to continue doing so? Sorry if these are very stupid questions but I don't really understand what it is the government is doing.
 
Effectively, there will be some form of rights issue.

Let's say that there are 100 shares in a company worth €3 each giving it a capitalization of €300.

If there is a rights issue of 100 further shares at €1 each, it means that there are 200 shares and the company is worth €400 and each share is now worth €2.

The old shareholders have lost €1 and the new shareholders have seen their holding double in value.

If each of the old shareholders buys one share each, then there is no change to their wealth or ownership of the company.

If the government insists that only the government or some outside investor can buy the new shares, then the existing shareholders will see the value of their investment decline.

The press release seems to suggest that the existing shareholders will be allowed to buy shares.

So my guess is

A rights issue underwritten by the government.
Any shares not bought by the existing shareholders will be bought by the government or by the outside investors.

Brendan
 
All the media talk is for the urgent need for banks to lend to businesses. Who in their right mind would lend in the present climate. I agree with some commentators that much more than 10m is required. a quick check on total bank advances and the potential for massive write offs seem to confirm this view. As someone just said on RTE prayer will be required in the coming time
 
€20 bn is the figure being quoted as that required to adequately capitalise the banks. This figure is basically the difference between what the banks say they are worth and the value of the banking sector as quoted by the markets. Existing shareholders will have the right to participate in the scheme as much as the government but who would want to? My guess is that the Government has already struck a deal with the private equity companies who will raise the other €10bn the banking sector needs..

Without doubt - I don't see the Government just dropping money into Anglo Irish with the current scheme. In every other Government Recapitalisation Scheme that has occurred in other economic crises (e.g. South East Asia in the 1990's), the Government's have always demanded consolidation of the banking sector before supplying funds. Anglo Irish will be gobbled up v soon by one or more of the other financial institutions - maybe even this week.

AIB for me will not partake in this scheme. They are in a "relatively" healthy position in that they have plenty of assets that could be sold off to raise funds rather than going through the markets.

All speculation of course until details emerge..
 
Yes - that is how I would interpret the following:

"In principle existing shareholders will be expected to have the right to subscribe for new capital on the same terms as the Government."

As a shareholder in AIB, I don't want to see my holding devalued, so I would participate in any fund raising - especially if I know in advance that the fundraising will be fully subscribed.

I would have been disappointed to see my shareholding diluted by issuing shares cheaply to other private investors or the government.

Brendan
 
As an existing shareholder you have pre-emption rights so the bank cannot issue new shares above a certain lpercentage level without shareholder consent. In the recent UK recapitalisation rights issues the government ended up buying almost all the newly issued shares.
 
Thanks for the 'simple' explaination. Wouldn't ordinary shareholders who have seen a lot of loses be loath to buy more shares? If the government does this would the share value go up in value. Will the government be looking at the banks books before making this investment? It would be silly to put money into a bank they may in effect be bust surely.
 
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