The Irish government stepped in last night to take full ownership of Anglo Irish Bank to prevent the collapse of the country's third biggest lender, as nationalisation fears inc-reased throughout the banking sector.
The republic's government made its move to stop runs on the bank's dep-osits and shares that could have caused it to implode. Confidence in Anglo Irish has collapsed since the resignations of its chairman, Sean Fitzpatrick, and chief executive, David Drumm, last month after it revealed that Mr FitzPatrick had concealed €87m (£78m) of loans from the bank. Brian Lenihan, the finance minister, said: "The funding position of the bank has weakened and unacceptable practices that took place within it have caused serious reputational damage to the bank at a time when overall market sentiment to-wards it was negative."
If Anglo Irish had been declared insolvent, the Government would have been left responsible for about €100bn of liabilities after guaranteeing all deposits in Irish banks last year.
Anglo Irish shares fell 10.8 per cent yesterday to €0.20, from a high of more than €17 in May 2007.
The government's reluctant nationalisation of Anglo Irish is a major blow to the republic, the self-styled Celtic tiger whose rapid economic growth was heavily dependent on rising property prices. Anglo Irish was for a long time one of the darlings of the banking sector but confidence in the company collapsed on fears about its heavy exposure to commercial property and precarious wholesale market funding.
The bank had planned to hold a shareholder meeting today to approve a €1.5bn recapitalisation which would have given the government 75 per cent voting control in the form of preference shares. But Anglo Irish's shattered reputation forced the government to nationalise the bank.
The bank's shares will be suspended today on the Dublin and London stock exchanges, with the government set to introduce legislation on Tuesday to effect nationalisation.
Bank shares fell heavily in the US and Europe yesterday on fears that more big lenders would have to ask for state help. Speculation mounted that Bank of America and Citigroup could be fully nationalised.
In the UK, where the Government now owns part or all of five banks, concerns increased that Royal Bank of Scotland could be fully nationalised after a dire profit warning from Deutsche Bank. Germany's biggest lender admitted to a disastrous fourth quarter in the wake of the Lehman Brothers bankruptcy that spelt bad news for UK banks such as RBS and Barclays. RBS was part-nationalised in November.
RBS is said to be close to appointing Sir Philip Hampton as chairman as early as today. Sir Philip is close to the Government and had already been made chairman of UK Financial Invest-ments, the company set up to manage the state's stakes in banks.
Sir Philip would probably have to step down from the chairmanship of J Sainsbury to take the job at RBS, which is looking for a full-time chairman.