(RTTNews) - Wednesday, the Irish Minister for Finance announced that the government agreed to recapitalize the Allied Irish Bank and Bank of Ireland with a view to secure the position of these banks.

Finance Minister, Brian Lenihan said the comprehensive recapitalization package worth EUR 7 billion would reinforce the stability of financial system, increase confidence in the banking system and facilitate the banks involved in lending to the economy.

The government will provide EUR 3.5 billion in Core Tier 1 capital for each bank. In exchange, the government will get preference shares with a fixed dividend of 8% and the Minister can appoint 25% of the directors to both banks.

The Minister also gets 25% of total ordinary voting rights in respect of change of control and board appointments. Further, warrants attached to the Preference Shares give an option to purchase up to 25% of the ordinary share capital of each bank existing on the date of issue of the New Preference Shares.

The recapitalization programme will be funded from the National Pensions Reserve Fund.

The State does not intend to take control of these banks. Though the State will not hold ordinary shares in either bank, they will have an option to buy shares in five years time at a predetermined strike price, thus providing the State with the potential for a significant return.

The recapitalization package is subject to regulatory approval and the approval of the ordinary shareholders at general meetings which will be convened without delay, the Finance Minister stated.

The banks agreed to reduce senior executive salaries by at least 33%.

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Posted in Categories: Economy, Eurozone, Releases.

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