Brian Lenihan Jnr (Dublin West, Fianna Fail)

It is not a matter of bluff when the solvency of the country has to be protected. In keeping with this approach, my Department, in conjunction with the Attorney General, is working on resolution and reorganisation legislation which will enable the implementation of reorganisation measures specific to Anglo Irish Bank and the Irish Nationwide Building Society which will address the issue of burden-sharing by subordinated bondholders. The legislation will be consistent with the requirements for the measures to be recognised as a reorganisation under the relevant EU directive in other EU member states.

To date €2.7 billion in capital has been provided to cover the losses on lending by the Irish Nationwide Building Society. The NTMA has recommended that I provide a further and final €2.7 billion, representing a prudential estimate of the capital required to cover expected losses on the residual loan book and bringing the total capital support to €5.4 billion

I have accepted the NTMA's recommendation in order to establish a ceiling on the level of support provided to the society consistent with the objective of providing final clarity on the public support required by the Irish banking system. I have asked the NTMA and my other advisers to explore options for the society and to bring finality to the position. Management in INBS was replaced in 2009. This further capital investment by the State will reassure depositors in the institution that all deposits remain secure. Bank of Ireland has already met the Financial Regulator's 2010 capital requirement and the estimated NAMA transfers now announced do not mean it will not need any further capital.

The Financial Regulator determined last March that to meet its capital requirements AIB must raise €7.4 billion by the end of 2010. AIB has already announced the sale of its Polish subsidiary, BZWBK, which is expected to generate capital of €2.5 billion. In view of the increased NAMA discount for AIB the Central Bank has concluded that an additional amount of €3 billion will be required. This brings the new total capital requirement for AIB, after deducting the capital generated on the sale of its Polish subsidiary, to €7.9 billion. In the current stressed market conditions, the bank is unlikely to be able to conduct a traditional privately underwritten transaction on a substantial scale. To afford every opportunity to AIB to raise as much as possible of the required capital from the markets and, to minimise further Government support, it has been decided that this capital requirement will be met through placing an open offer to shareholders of AIB shares to the value of €5.4 billion. This transaction will be fully underwritten by the National Pension Reserve Fund Commission, NPRFC, and is expected to be completed in 2010. If necessary, the NPRFC's underwriting commitment will be satisfied by the conversion of up to €1.7 billion of its existing preference shares in the bank into ordinary shares, along with a new cash investment for the balance of €3.7 billion in ordinary shares. This transaction structure assumes the sale of AIB's stake in M&T Bank and disposal of other assets in due course. In the event that the bank's residual capital requirement is not met through asset sales by 31 March 2011, any shortfall will be met by the conversion of a proportion of the remaining €1.8 billion of preference shares. As a consequence of these actions, it is likely that the State will hold a majority shareholding in AIB.

The high level of State support being provided to AIB is absolutely essential given the central role AIB plays in the Irish economy and Irish financial system. In the coming weeks, I will be working closely with the board of the bank on behalf of the Government to ensure that AIB successfully overcomes its current challenges and develops a renewed strategic focus on the Irish market following the sale of its overseas operations. In conjunction with the recapitalisation, there will be management and board changes in AIB. The bank's board has agreed with Mr. Dan O'Connor that he will step down as executive chairman within the coming weeks. The bank's board has also agreed with the group managing director, Mr. Colm Doherty, the termination of his contract on existing terms. Mr. Doherty will depart AIB before the end of 2010. I appreciate the efforts of Mr. O'Connor and Mr. Doherty in successfully selling the Polish subsidiary and in helping to manage the bank in the transitional period.

The projected final NAMA discount for EBS is in the region of 60%. The Central Bank has advised that this final discount will have no material implications for the overall capital requirements of the banking system. The society is in discussion with a number of parties about its future and any adjustment in its capital need that arises will be accommodated in the outcome of those discussions in due course.

The Government is committed to restoring sustainability to our public finances. The inclusion in this year's deficit of the banking support measures does not alter this commitment in any way. This target can be achieved in a manner which is consistent with maintaining a sustainable trajectory for Ireland's general government debt and the capacity of the National Treasury Management Agency to fund the Exchequer's borrowing requirement. Today's announcement brings full clarity to the costs and methods of recapitalising the banks.

What is now most important is that we have a credible path to show how we propose to meet our budgetary commitments. Accordingly, a four year budgetary plan will be published in early November, which will incorporate the annual measures.

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