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Ireland Seizes Allied Irish, Fourth Bank Nationalized

Ireland Takes Control of Allied Irish
Four years ago, at its peak, Allied Irish Banks Plc was worth almost 21 billion euros, making it the country’s largest company at the time. Photographer: Aidan Crawley/Bloomberg

Ireland’s High Court said Allied Irish Banks Plc can be taken over by the government without shareholder approval as the lender became the fourth bank to fall under state control since 2008.

Finance Minister Brian Lenihan secured approval from the Dublin-based court today to inject 3.7 billion euros ($4.8 billion) into the lender by Dec. 31 and raise its stake to 92 percent from 19 percent, the Finance Ministry said in a statement. Allied Irish, Ireland’s largest company by market value in 2007, recorded its biggest share price drop in 22 months in Dublin trading. Valued at almost 21 billion euros at its peak, the bank’s market capitalization today was 347 million euros.

“We wouldn’t have had Allied Irish Banks on the 1st of January if this investment wasn’t made,” Lenihan said in an interview with Dublin-based broadcaster RTE Radio after the ruling.

Irish banks are grappling with loan losses after the collapse of a decade-long real-estate boom. The state has already taken control of Anglo Irish Bank Corp., Irish Nationwide Building Society and EBS Building Society. Irish Life & Permanent Plc, the only Irish lender to avoid a bailout, will try to meet new capital requirements from its own and from market resources early next year, Lenihan said. So will Bank of Ireland Plc, which is 36 percent state-owned, he said.

‘Critical’ to Company

Allied Irish needs to raise 6.1 billion euros by the end of February to reach a new target of 12 percent for core Tier 1 capital, a gauge of financial strength. The new target was set by the Central Bank on Nov. 28 as Ireland agreed to an 85 billion-euro international bailout to bailout its banks and the public finances.

“The capital increase by year-end is, in the opinion of AIB’s board of directors, critical for the continued activities of the company,” Allied Irish said in a statement today.

To achieve the February target, Allied Irish said it is considering selling further shares to the state and generating equity by buying bank or exchanging subordinated bonds at a discount in the market.

“It’s clear the government doesn’t want to wipe out shareholders - at least for the time being,” Emer Lang, an analyst with Dublin-based securities firm Davy, said by telephone.

The government committed today to converting its 3.5 billion euros of Allied Irish preference shares, acquired in May 2009, into ordinary stock to help achieve the remaining capital.

“I think Allied Irish will be able to raise the remaining 2.6 billion euros from buybacks or swaps of subordinated bonds,” said Lang.

Shareholder Rights ‘Unaffected’

At Lenihan’s request, the Dublin court also directed the bank to cancel its listing on the main Irish and London stock exchanges and move to the junior Irish bourse, the Enterprise Securities Market.

“This is to ensure that shareholders retain access to a public trading facility for their shares,” the Finance Ministry said in a statement. “Shareholders’ ownership of, and rights over, the existing ordinary shares will be unaffected by this move.”

The government’s stake will be temporarily limited at 49.9 percent to facilitate the completion of Allied Irish’s sale of its Polish unit. Following the disposal of Bank Zachodni BWK SA to Banco Santander SA agreed on Sept. 10, the stake will increase to 92 percent, the Finance Ministry said.

Allied Irish fell 20 percent to 32 cents at the 5:10 p.m. close of Dublin trading, giving the lender a market value of 347 million euros.

Allied Irish was formed in 1966 through the merger of three lenders, Munster & Leinster Bank Ltd., Provincial Bank of Ireland Ltd. and Royal Bank of Ireland Ltd. Provincial was established 185 years ago.

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