State to Become Bank’s Biggest Shareholder

During the debate over the banking crisis, the Government resolutely refused to go down the road of nationalising any of the major financial institutions but when the financial markets open tomorrow (Monday), the State will be the biggest shareholder in the Bank of Ireland.

The bank was unable to pay a cash dividend of €250 million due to the state-owned National Pensions Reserve Fund Commission (NPRFC) on Friday and, under EU regulations, the Commission was forced to take a 15.7 per cent stake in the company instead, according to a story in the Sunday Business Post.

The dividend was due to the NPRFC on foot of the preference shares it received in the bank last year in return for its €3.5 billion capital injection. The EU attached conditions to the injection to ensure that neither the Bank of Ireland nor AIB could be viewed as receiving unfair State aid.

The EU has effectively forced the bank to issue shares instead of cash despite the preference of the Government for having the payment made at a future date. The AIB is expected to be in a similar position shortly.

Its dividend payment is due on 13 May – if it is not able to pay in cash, the State, at current share price levels, would end up taking 20 per cent of the bank.

The Business Post also reports that Anglo Irish Bank will transfer around €32 billion of loans to Nama (National Asset Management Agency) in the coming months. This is €4 billion more than was originally expected and, it says, a similar pattern is expected across other banks.