Ireland's three biggest banks given €7bn bailout

The Irish banking system was the latest to receive state assistance over the weekend as the government in Dublin agreed to spend as much as €7bn of taxpayers' money to rescue the country's three biggest banks. The move will mean that Anglo Irish Bank, which was caught up in a loans scandal last week, has in effect been nationalised.

Anglo Irish will receive €1bn in return for the government gaining an 80 per cent stake. Allied Irish Bank (AIB) and Bank of Ireland will each get €2bn. Additionally, private investors will be invited to buy €1bn worth of new shares to be issued by AIB and Bank of Ireland, which will be bought by the government if there is insufficient take-up from funds.

The move in Ireland follows similar steps taken in the UK in recent months, which have seen the Government take a majority stake in Royal Bank of Scotland and forced the merger of Halifax Bank of Scotland and Lloyds TSB.

Anglo Irish has been the worst-hit of the Irish banks during the financial crisis. The group's shares closed at €0.27 last Friday, down from the year highs of €11.15. Last week Anglo's chairman, Sean FitzPatrick, and chief executive, David Drumm, resigned after Mr FitzPatrick said he had transferred loans of around €87m that he had received from the bank to another bank before each year-end over a period of eight years. Due to this transfer, the loans, which Mr FitzPatrick said he received on commercial terms, did not appear in annual accounts available to shareholders.