Allied Irish shares drop ahead of High Court move
Shares in Allied Irish Banks fell 10 percent on Thursday ahead of a state capital injection that will see the effective nationalization of what was once Ireland's largest listed lender.
AIB's aggressive courtship of property developers proved its undoing when Ireland's real estate market bubble burst, triggering huge industry-wide losses that forced the government to seek an 85 billion-euro bailout from the EU and the IMF.
The government was seeking the Irish High Court's approval on Thursday to pump 3.7 billion euros into AIB to boost its capital levels ahead of a year-end deadline set by the central bank. Another larger state injection will be made early next year.
The government is using the courts to avoid having to seek shareholder approval.
This week's move is expected to leave the state, which already has a near 19 percent stake in AIB, with almost full ownership and marks a bitter end for shareholders, who have seen their stock plummet from a record high of over 24 euros in 2007 to just 36 euro cents.
It's a sorry end to a sorry year, said one Dublin-based dealer. There is no value if you are going to be effectively nationalized.
At 0947 GMT (4:47 a.m. EDT), the stock was down 10 percent at 36 euro cents in a broadly flat general market.
AIB has sold off prized overseas assets to strengthen its balance sheet but spiraling loan losses kept raising its additional capital requirements from 7.4 billion euros in March to 10.4 billion euros in September to 15.7 billion euros in November when Ireland agreed to overcapitalize its banks in return for EU/IMF assistance.
Under the bailout, Ireland will receive 50 billion euros to cover its sovereign funding costs for the next three years and 35 billion euros to bulk up its banking sector.
The European Commission on Tuesday approved the 3.7 billion euros capital injection, which will come from the country's national pension reserve fund, and also a 6.1 billion euros recapitalization for next year.
The government has pledged to shrink and restructure its banks as part of the bailout and has passed legislation giving the Minister for Finance unprecedented powers to transfer banks' assets and liabilities, sack directors and impose losses on junior bondholders.
Under the restructuring plan AIB needs to get its core tier 1 capital adequacy ratio, to 8 percent of assets by the end of this year and will bulk it up to 14 percent by the end of February.
Finance Minister Brian Lenihan is expected to impose losses on AIB's junior bondholders early next year, with AIB holding around 4.8 billion euros in subordinated debt.
(Editing by Greg Mahlich)
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