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Tuesday April 22, 2009

AIB Asks For A Further Bailout Of Five Billion Euro

AIB is seeking an addition five billion euro from Irish taxpayers (Photocall)

On February 12 Allied Irish Banks (AIB) announced an agreement with the Irish Government in relation to the proposed recapitalisation of the bank. 

Since then, market and public uncertainty about their capital adequacy has persisted despite the proposed addition of €3.5 billion in core tier 1 capital

As a result, AIB have announced that they will be seeking shareholder approval at an Extraordinary General Meeting on May 13 to accept an extra capital injection from the Government. 

Furthermore following discussions with the Minister for Finance and reflecting his desire to ensure that systemically important banks would remain adequately capitalised, even in stressed scenarios, they also announced further action to strengthen their capital position. 

In cooperation with AIB, the Minister for Finance Brian Lenihan T.D. has been conducting due diligence and stress test scenarios.   

Arising from these stress tests the Minister and AIB have formed a view that to strengthen the companies capital position a total amount of €5.0 billion of new core tier 1 capital is required.

As a result, in addition to the proposed €3.5 billion injection by the Government, the firm aims to increase core tier 1 capital by a further €1.5 billion before the end of 2009. 

Potential sources of this capital include the disposal of assets and marketable assets will be considered as part of this process.

This commitment represents a reappraisal of their previous view in relation to asset disposal.

The bank also acknowledged that the Minister agreed that if any further capital injections are required from the State these would be in the form of equity capital.   

The bank also stated its support for "what we believe is a positive step taken by the Government in its recent decision to create a National Asset Management Agency (NAMA)" and said that it was its intention to participate in that initiative.  NAMA is currently at an initial planning stage and AIB said that they will work closely with the authorities to achieve its implementation.

Minister for Finance Brian Lenihan T.D.. welcomed the statement from AIB.

He suggested that this move will further boost confidence and credibility in AIB's ability to "weather the financial storms that [they] have experienced and to emerge in a stronger position when conditions improve. The strengthening of its capital position will improve the banks balance sheet and better position it to lend to businesses in support of Ireland's economic recovery."

The Minister also welcomed the AIB support for Government's decision to create the National Asset Management Agency and its intention to fully participate in the initiative.

He stressed that work had already begun on the establishment of NAMA and that it would be progressed as a matter of priority over the coming weeks.

When asked by reporters whether they intended to nationalise AIB, the Finance Ministry responded that, "The Minister has stated clearly that he does not intend to nationalise AIB or Bank of Ireland. The Minister considers it important that these banks continue to have a market presence and to operate within market disciplines and constraints. The Minister, however, made it clear in his budget statement that if any further capital injections are required from the State these would be in the form of equity capital, which would have the effect of increasing state ownership and control."

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