The Irish government is to nationalise Anglo Irish Bank after opting against pumping money into the struggling bank.
The government had planned to pump €1.5 billion into the country’s third-largest bank in return for a 75% stake, but fears of a run on the bank and recently-damaged reputation forced it into a U-turn.
Last month, chairman Anglo Irish Sean FitzPatrick quit his role after revealing he had kept shareholders in the dark about an €87 million loan he took for over eight years from the bank.
According to the government, this caused serious reputational damage to the bank “at a time when overall market sentiment towards it was negative”. Shares in Anglo Irish have plummeted over the past two years. In early 2007 shares were trading hands at €22 – at close of trading yesterday they were just 22 cents.
A statement from the Republic of Ireland’s department of finance said: "Anglo Irish Bank is a major financial institution whose viability is of systemic importance to Ireland. Anglo Irish has a balance sheet of some €100 billion with a substantial deposit base which the state is determined to safeguard.”
Impact on savers
The Irish government says that the full amount of customers’ deposits with Anglo Irish will be "further safeguarded" by the decision to nationalise the bank.
Anglo Irish has also been topping the best-buy tables recently, with attractive rates designed to bring in British savers. The fact that the Irish government has pledged to protect 100% of savings for two years until September 2010 will also have tempted many British savers to move their nest-eggs to Anglo Irish.
The good news is that your money is safe - despite deciding against a capital injection, the Irish government is making moves to protect Anglo Irish and its customers.
However, bear in mind that the 100% protection is only in place until September 2010. After this time, you’ll only be covered up to €100,000 (£89,659).
“Anglo Irish has been paying some very attractive rates to savers in recent weeks,” says Gavin Haynes, managing director of the independent financial adviser firm Whitechurch Securities. "Savers shouldn't panic and give up a good rate."
Ireland's Prime Minister, Brian Cowen, said that the move was "the right decision" and in "the best interests of the economy".
The government will present legislation to approve the nationalisation to the Irish parliament on Tuesday 20 January.