Irish Govt poised for $7 bn bank bailout: Papers

The Irish Govt is planning to inject a total of around 5 billion euros into the country's three main banks in the first phase of a recapitalisation process, two Irish newspapers said today.

The Irish government is planning to inject a total of around 5 billion euros ($6.98 billion) into the country's three main banks in the first phase of a recapitalisation process, two Irish newspapers said on Sunday.

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The move would involve an effective nationalisation of Anglo Irish Bank, which has been at the centre of a loans scandal, and significant investment in the two biggest financial institutions, Allied Irish Banks (AIB) and Bank of Ireland, the papers said, without specifying sources.

None of the three banks were immediately available to comment.

The Irish edition of The Sunday Times and the Dublin-based Sunday Business Post both said the government would put 1 billion euros into Anglo Irish in return for a stake of up to 80 percent, and invest 2 billion each into AIB and Bank of Ireland.

Private investors would be invited to subscribe for 1 billion of new shares in each of the two big banks, The Sunday Times said, and if these shares were not taken up the government would undertake to buy them, bringing its total outlay to some 7 billion euros.

An official announcement on the recapitalisation plans is expected shortly, either later on Sunday or early next week.

Pressure on the government to act over the banks intensified following the resignation of Anglo Chairman Sean FitzPatrick and Chief Executive David Drumm this week after FitzPatrick said he had transferred loans of around 87 million euros that he had received from the bank to another bank before each year-end over a period of eight years.

Due to this transfer, the loans, which FitzPatrick said he received on commercial terms, did not appear in annual accounts available to shareholders.

Ireland's financial regulator said on Saturday it would probe directors' loans at all banks and building societies covered by a 400-billion-euro government guarantee programme. These are Allied Irish Banks, Bank of Ireland (BKIR.L), Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society.

The government has vowed to support Anglo Irish, a one-time poster boy for the Irish boom, whose market value has plummeted to just 266 million euros from a height of around 13 billion euros in 2007, but investors and senior politicians have questioned whether taxpayers should bail out the niche commercial lender.