The Irish government is planning an investment of “up to €10bn” ($13.5bn, £9bn) in the country’s banks, in partnership with private investors.
The planned recapitalisation, announced in a statement by the finance ministry late on Sunday, is aimed at strengthening the balance sheets of the banks and restoring investor confidence in bank shares, which have fallen sharply in the last week.
The statement said the investment “may take the form of preference shares and/or ordinary shares and the state may where appropriate participate on an underwriting basis”.
Bank shares jumped in early Dublin trading on Monday. Shares in Anglo Irish Bank, which have plunged from a record high of close to €18, were up nearly 25 per cent at €0.47 while Bank of Ireland was 24 per cent higher at €1.09. Irish Life & Permanent gained 6 per cent to €1.61 and Allied Irish Banks was 8.6 per cent higher at €2.15.
Brian Lenihan, finance minister, is expected to meet the bank chief executives in the coming days to finalise the plan. The statement indicated the government expected the banks to be in a position to present plans in early January.
The government plans to use money from the National Pension Reserve Fund, a sovereign wealth fund with assets under management of €18bn which was established to part fund the future public service pensions.
“Any state investment will be undertaken in line with best practice in the EU and elsewhere and consistent with EU rules and, in particular, the recent European Commission communication on recapitalisation,” the statement said.
Investment would be on a “case by case basis… having regard to the systemic importance of the institution”.
Richard Bruton, finance spokesman for the main opposition Fine Gael party, said the announcement was vague and sketchy on detail. It was designed to buy time for the government, rather than to get cash flowing through the banks, he said.
In its statement, the government said it believed that, in current market conditions, even fundamentally sound banks may require additional capital “to respond to widespread market perception that higher capital ratios are appropriate for the sector internationally”.
Under the plan, recapitalised institutions may be required to comply with tighter transparency measures insisted on by Mr Lenihan.