Ireland pumped in billions of extra euros to prop up its troubled banking system on Tuesday as its finance minister warned his “worst fears have been surpassed” about how recklessly bankers had behaved.
Brian Lenihan told a bad-tempered session of parliament that the state was buying 81 billion euros (US$109 billion) of toxic assets from failing lenders and injecting an extra 8.3 billion euros into Anglo Irish Bank.
Although he gave no exact figures, he added the state will likely take a majority share in Allied Irish Bank — currently 25 percent state-owned — but remain a minority shareholder in Bank of Ireland, where it has a 16 percent stake.
Lenihan said that “truly shocking” information had emerged about the way Irish banks had behaved in the run-up to the global financial crisis.
“At every hand’s turn, our worst fears have been surpassed,” he said. “Some institutions were worse than others. But the fact is that our banking system, to a greater or lesser extent, engaged in reckless property development lending. In too many cases there were also shoddy banking practices. The banks played fast and loose with the economic interests of this country.”
Ireland’s financial institutions have been hammered by a record 13-percent slump in the former Celtic Tiger economy and the bursting of a property bubble that has seen prices plummet by about 50 percent.
The state has already poured 11 billion euros into recapitalizing Allied Irish Bank, Bank of Ireland and the nationalized Anglo Irish Bank.
The biggest bail out announced on Tuesday will be for Anglo Irish, which has already received 4 billion euros.
Lenihan said that in addition to the 8.3 billion euros, it needed as much as 10 billion euros extra in the future. However, he stressed that simply winding up Anglo Irish “is not and was never a viable option.”
“The realization of the costs involved and the wider disruption to the financial system would generate enormous instability for the state with unforeseeable, but potentially long-lasting, damage to the overall economy,” he said.
The state is also to inject 2.6 billion euros into Irish Nationwide Building Society, effectively nationalizing it.
Richard Bruton, finance spokesman for the main Fine Gael opposition party, said he was “truly shocked” at the scale of what Lenihan was asking people to accept.
“The decisions today will double the national debt at one stroke,” he told RTE state radio.
The 81 billion euros of toxic assets are being bought by Ireland’s National Assets Management Agency (NAMA), or so-called “bad bank,” which was especially set up to hold and ring-fence the bad loans from the rest of the banking system.
NAMA said in a statement that it would buy between 14,000 and 15,000 loans with a nominal value equivalent to 81 billion euros from five Irish banks and building societies.
Bank of Ireland PLC, meanwhile, yesterday reported a loss of 1.47 billion euros for the final nine months of last year as it booked impairment charges of more than 4 billion euros on bad loans.
During the fiscal year ending March 31 last year, Bank of Ireland made a profit of 18 million euros with impairment charges amounting to 1.44 billion euros.
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