Dec. 22 (Bloomberg) -- Bank of Ireland Plc and Allied Irish Banks Plc rose in Dublin trading after the government said it will inject 2 billion euros ($2.8 billion) into each of them to protect the Irish financial-services industry from collapse.

Bank of Ireland climbed 32 percent, the most in seven weeks, while Allied Irish rose 1.2 percent after the announcement late yesterday. Anglo Irish Bank Corp. fell 14 percent after the government said it would take control of the company by pumping in 1.5 billion euros.

Ireland, the first country in Europe to guarantee all bank deposits, is being forced to use public money after initially urging lenders to seek support from private investors. Since the guarantees on Sept. 30, the ISEF Financial Index has plunged 70 percent as banks’ capital was eroded by bad loans to homeowners and property developers in Ireland and the U.K.

“There was always going to be a relief rally,” said Alex Potter, an analyst at Collins Stewart in London. Anglo Irish will become “state-controlled though remains publicly owned. This means the equity remains highly dangerous in the near term,” he said.

Bank of Ireland and Allied Irish will give the state preference shares that pay an 8 percent annual dividend and 25 percent of the voting rights on issues such as change of control and capital structure. Anglo Irish is giving the state preference shares that will pay a fixed 10 percent annual dividend and 75 percent of voting rights. The preference shares are “perpetual” and won’t convert into ordinary shares.

The dividend payable to the government is lower than the 12 percent rate the U.K. is charging British banks that tapped it for new capital.

Executive Scandal

The decision comes days after Anglo Irish was embroiled in a scandal related to Chairman Sean Fitzpatrick’s non-disclosure of 87 million euros in loans he received from the bank. Fitzpatrick and Chief Executive Officer David Drumm resigned last week.

The state is also prepared to underwrite a further issue of as much as 1 billion euros in shares by both Allied Irish and Bank of Ireland. The finance ministry has a “substantial pool” of additional capital available, and said it is also encouraging banks to seek private money.

Bank of Ireland is “very seriously considering” raising as much as 1 billion euros in additional capital, CEO Brian Goggin told analysts on a conference call. “We’re not going to take it if the consequences of it are materially detrimental to shareholders. We aren’t taking it at any cost.”

The terms of the government’s investment are “particularly attractive for ordinary shareholders,” given the “low rate of return” the state is getting, NCB Stockbrokers analysts John Cantwell and Ciaran Callaghan wrote in a note.

Shares Jump

Bank of Ireland rose 22 cents to 89 cents in Dublin, having earlier surged 31 cents for its biggest percentage gain since at least January 1987. Allied Irish climbed as much as 45 cents and closed up 2 cents to 1.67 euros, while Anglo Irish fell 5 cents to 30 cents.

Irish Life & Permanent Plc, the country’s biggest mortgage lender, said in a statement today that its capital level will be boosted by 250 million euros over three years after it agreed a reinsurance contract with Swiss Reinsurance Co.

Shareholders in Anglo Irish will vote on the investment package at an extraordinary general meeting on Jan. 16. The bank said it has begun the search for a new CEO.

To contact the reporters on this story: Ian Guider in Dublin at iguider@bloomberg.netLouisa Nesbitt in Dublin at lnesbitt@bloomberg.net

Last Updated: December 22, 2008 12:50 EST