DUBLIN (Reuters) - Ireland’s government nationalized Anglo Irish Bank ANGL.I on Thursday in a drastic step to prevent a possible collapse that could have undermined the sector and crippled the country’s finances.
The stock market value of Ireland’s No. 3 bank has gone into freefall since a loans scandal last month, and the government said full state control would ensure that the lender’s 80 billion euros ($105.2 billion) worth of deposits would be secure.
Shareholders had been due to vote on Friday on a scheduled injection of 1.5 billion euros, and earlier on Thursday a newspaper report said a new chief executive was about to be appointed. Separately, ratings agency Fitch downgraded ratings for five institutions including Anglo Irish.
“We cannot afford the risk of any default in honoring the deposits, that is fundamental,” Finance Minister Brian Lenihan said in a late-night news conference.
“It’s in a fragile position. (but) It’s a solvent bank,” he said.
Anglo Irish itself said the shareholder vote was now abandoned “following the decision of the government not to proceed with the recapitalization of the bank.”
The niche commercial lender, a former poster boy for Ireland’s property-fueled economic boom, will continue to trade, and Lenihan said all customer deposits would be safeguarded.
He said the bank would honor its debts.
But shareholders, who have already seen their holdings all but wiped out as Anglo’s shares slid to just 20 euro cents from over 17 euros in 2007, risk being left empty-handed.
The government said it expected the shares would be suspended from the Dublin and London stock markets on Friday.
Under the nationalization plan, a government-appointed assessor will decide how much the bank is worth and decide on the appropriate compensation.
“If the assessor decides that the bank is worthless then the compensation is nil,” said Lenihan.
One shareholder, Charlie Moore, said the decision was “catastrophic” “We are people that rely on the dividend for our income,” he told state television.
Lenihan declined to say what the nationalization would cost taxpayers.
The Irish government tied the state to the fate of the banking sector last October when it agreed to guarantee all deposits of major Irish lenders and foreign banks with a significant Irish presence.
The amount covered, up to 485 billion euros, is more than twice the country’s annual gross domestic product.
Ratings agencies have already warned that Ireland’s exposure to the banking sector’s bad debts could affect its AAA credit rating.
While admitting that the major banks, whose finances have been hit by a crumbling property prices at home and
abroad, had “considerable bad debts,” Lenihan said the nationalization would not impact the country’s credit rating.
In December, Dublin already agreed to inject an initial 1.5 billion euros of core tier 1 capital via preference shares into Anglo Irish, which was to give the state 75 percent of all voting rights in the bank.
Anglo’s shareholders were meant to vote on that offer on Friday but Lenihan said that while a shareholders’ meeting would proceed in Dublin, there would be no vote.
The bank shocked the financial industry last month when then-chairman Sean FitzPatrick said he had kept shareholders in the dark about 87 million euros ($114 million) of loans he received from the bank. The revelation triggered a purge of senior management and prompted the early retirement of Ireland’s chief financial regulator, Patrick Neary.
A probe of director loans at all Irish banks is ongoing.
Lenihan said Dublin would proceed with plans to invest $1 billion each in the top two banks, Allied Irish Banks ALBK.I and Bank of Ireland BKIR.I, via preference shares and underwrite capital raising by both lenders to the tune of 1 billion euros each.
He reiterated that the wider Irish financial system was well capitalized and liquid.
Lenihan said Donal O’Connor, who was appointed to replace FitzPatrick in December, would remain in place. The government will appoint a new board.
Reporting by Carmel Crimmins and Andras Gergely; Editing by Andrew Callus