The Irish government is to invest 7 billion euros in Allied Irish Banks and Bank of Ireland, and is in talks to insure them against potential losses on up to 24 billion euros ($30.84 billion) in property loans, The Sunday Times newspaper reported. Without citing any sources, the newspaper said the recapitalisation scheme would be announced this week.
The top two banks will each receive 3.5 billion euros from the state in return for preference shares, which will carry an interest rate of 8 percent, providing an annual payment of 560 million euros.
No one from the Department of Finance or Bank of Ireland was immediately available to comment.
A spokeswoman for Allied Irish Banks (AIB) said the report was "speculation" and declined to comment.
The Sunday Times said the government was considering transferring the risk attached to 80 percent of the value of property-related loans on the banks' books to taxpayers.
The insurance scheme under consideration will cover outstanding loans on development land and on part-completed construction projects.
AIB and Bank of Ireland are believed to have in the region of 37 billion euros in speculative property loans on their books, the newspaper reported.
Under the scheme being considered, if any of those loans have to be written off, the state will pick up the bill for 80 percent of the insured amount and the bank will bear the rest of the cost.
{{/usCountry}}Under the scheme being considered, if any of those loans have to be written off, the state will pick up the bill for 80 percent of the insured amount and the bank will bear the rest of the cost.
{{/usCountry}}The government said in December it would invest 2 billion euros in each of AIB and Bank of Ireland via preference shares in the first quarter of 2009 and would underwrite plans by each of the banks to raise 1 billion euros before the end of March.
But the banks' shares have been buffeted by the fallout from the nationalisation of No. 3 lender Anglo Irish Bank last month making it difficult for them to tap investors for funds.
The government said last year it would invest up to 10 billion euros to recapitalise the banking sector, which has run afoul of the global credit crisis and heavy exposure to a crumbling property market at home.