Ireland to Invest $7.7 Billion in 3 Irish Banks

By Shawn Pogatchnik

DUBLIN -- Ireland will invest at least 5.5 billion euros ($7.7 billion) in three Irish banks to boost their cash reserves, investor confidence and the banks' ability to lend, the government announced.

Finance Minister Brian Lenihan said Sunday night that the boards of the three banks -- Allied Irish(AIB Quote), Bank of Ireland (IRE Quote) and Anglo-Irish -- would issue preference shares paying fixed dividends to the government in exchange for the aid. The plan still requires shareholder approval at emergency meetings expected next month.

The plan is designed to boost each bank's cash reserves and restore international confidence in Ireland's banking sector, which faces rising loan defaults and the prospect of worse to come from a deepening recession.

Allied Irish, Ireland's biggest bank, and No. 2 Bank of Ireland both are in line to receive 2 billion euros. In return, the government will receive preference shares paying a fixed 8% dividend -- or 160 million euros a year from each bank -- as well as 25% of voting rights in the bank's board of directors.

Anglo-Irish, a specialist lender heavily exposed to the collapse of Ireland's property and construction markets, would fall under government control.

The government has agreed to pay 1.5 billion euros for preference shares in Anglo-Irish that will pay a 10% fixed dividend, or 150 million euros annually. The government would receive 75% of voting rights if shareholders approve the plan.

Lenihan said all three banks could pay back the aid at face value within the next five years, or 125% of its value after five years. He also said the government was ready to provide more aid if the banks' share values and ability to lend didn't markedly improve.