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Dublin - Shares in Allied Irish Banks (AIB) fell 10% on Thursday ahead of a state capital injection that will see the effective nationalisation 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 €85bn bailout from the EU and the IMF.
The government was seeking the Irish High Court's approval on Thursday to pump €3.7bn 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 about 19% 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 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 nationalised."
In morning trade the stock was down 10% at 36 euro cents in a broadly flat general market.
AIB has sold off prized overseas assets to strengthen its balance sheet but spiralling loan losses kept raising its additional capital requirements from €7.4bn in March to €10.4bn in September to €15.7bn in November when Ireland agreed to "overcapitalise" its banks in return for EU/IMF assistance.
Under the bailout, Ireland will receive €50bn to cover its sovereign funding costs for the next three years and €35bn to bulk up its banking sector.
The European Commission on Tuesday approved the €3.7bn capital injection, which will come from the country's national pension reserve fund, and also a €6.1bn recapitalistion 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% of assets by the end of this year and will bulk it up to 14% 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 €4.8bn in subordinated debt.
