FT.com / Companies / Banks – Cautious welcome for Irish recapitalisation
The bail-out of Irish banks differs significantly in several key details from the more than £50bn the UK government is injecting into its own banks.
In most respects, the banks and their shareholders have received better terms than their
UK counterparts, though the Irish government’s decision to wait nearly three months has left the banking system weaker.
Unlike the UK government, the Irish government has so far resisted taking an equity stake in the three banks it is helping. Instead it is buying €5.5bn in perpetual preference shares, which pay a specific coupon rate and can be redeemed by the banks at issue cost within five years.
The UK government bought £9bn in preference shares in Royal Bank of Scotland, HBOS and Lloyds, but it ended up with 58 per cent of RBS equity and will have to buy about 40 per cent of the combined Lloyds and HBOS if private investors refuse to take up the shares.
Irish equity shareholders are not diluted but will see their voting rights reduced while the government is involved. The Irish government will get
25 per cent of the vote each at Allied Irish and Bank of Ireland, and 75 per cent of the vote at Anglo Irish.
The Irish deal appears to allow the banks to pay dividends to common shareholders, as long as they make coupon payments to the government first. In the UK, ordinary dividends are banned until the banks redeem preference shares.
The Irish banks are also paying less interest: 8 to
10 per cent versus 12 per cent for the UK banks. Sources close to the talks said the lower rate reflected a fall in interest rates and the Irish government’s concern that the deal not be too punitive.