Ireland's government an-nounced plans Tuesday to inject billions of euros into the nation's beleaguered banking system and outlined bigger-than-expected discounts on loans to be transferred by financial institutions to the nation's "bad bank."
Minister for Finance Brian Lenihan said the nationalized Anglo Irish Bank Corp. would need an additional $11.2 billion in capital this week and will probably need a further $13.5 billion.
"An immediate wind-up would lead to a fire-sale of assets resulting in a permanent additional and unnecessary loss of upwards of 30 billion euros," he said. "In addition, the state would have to provide a large sum of cash — in the order of 70 billion euros — up-front to meet the deposits, bondholders and the liabilities due to the euro system."
He also said Bank of Ireland PLC must raise an additional $3.6 billion in capital by yearend to meet the financial regulator's new capital standards. "I fully support the bank's objective to meet a substantial amount of its capital requirement from private sources," he said.
Lenihan said Allied Irish Banks PLC will need an additional $10 billion in capital. If it cannot raise that capital privately, Lenihan said, the state may end up with a controlling stake.
The Central Bank and Financial Regulator said these estimates came after some "frank" discussions with the banks.
Ireland's banks were particularly hard hit by the global financial crisis and a collapse in the property market.
Tuesday was D-Day for the banking system, with government bodies outlining their grand plans for its resurrection, but opposition politicians have said the financial burden will crucify generations of Irish taxpayers.
At Tuesday's close, Allied Irish had slumped 8.8% in Dublin trading on fears it may slide into state ownership; Bank of Ireland rose 3.4% on hopes that it could raise capital privately.
Separately, Ireland's National Asset Management Agency, or Nama, said that it will take the first batch of bad loans from Irish banks at an average discount of 47% to face value — more than the 30% previously flagged by the government.
Nama said it will buy from banks more than 1,200 individual loans with a nominal value of $21.6 billion, for $11.5 billion.
The biggest discount is 58% for $903.2 million of loans from the Irish Nationwide Building Society, and the smallest was 35%, for Bank of Ireland's $2.6 billion of loans.
A discount of 43% is to be imposed on the $4.4 billion of loans from Allied Irish Banks and a 50% discount on $13.5 billion of loans being transferred to Nama from the nationalized Anglo Irish Bank.
Nama said it expects to buy $109.2 billion of loans, in all, by the end of February 2011.
"We are facing up to our banking difficulties," Lenihan told a packed Parliament. "We have acknowledged the scale of our problems, and we have taken the necessary actions to solve them."
He added, "The banks have been forced to recognize their losses, and this government, on behalf of the taxpayer, has committed the capital that will ensure we have a banking system to serve this economy as it recovers."