Anglo Irish Bank to get 8.3bn euros in fresh bailout

The struggling Anglo Irish Bank was nationalised last year

The Irish government will inject another 8.3bn euros (£7.4bn, $9.9bn) into the nationalised Anglo Irish Bank, it has been announced.

Irish Finance Minister Brian Lenihan said pumping in more money was "the least worst option".

Allied Irish Banks and Bank of Ireland will try to raise money from private investors.

But Allied Irish Banks will probably require taxpayer support, the finance minister added.

It's a steep price for the Irish state, but the government's conviction is that recovery can only follow a frank admission of the banks' past sins Robert Peston, BBC Business Editor Read Robert Peston's blog

No new government money is likely to be invested in Bank of Ireland.

The second bailout follows the nationalisation of Anglo Irish Bank last year.

The Irish government also owns 25% and 16% stakes in Allied Irish Banks and Bank of Ireland respectively.

"Finding a long-term solution for Anglo Irish Bank is by far the biggest challenge in resolving the banking crisis," said Mr Lenihan, defending the fresh injection of equity into the lender.

"The unavoidable reality is that the bank has incurred losses from its large-scale property lending and needs substantial further capital.

"Unpalatable as it is, only the taxpayer can provide that capital. It is the least worst option."

Toxic asset plan

A further 2.6bn euros will also be invested in the Irish Nationwide Building Society, which struggled after it invested heavily in commercial property before the financial crisis.

The injection of new cash is the first prong of the government's strategy for dealing with its faltering banking sector.

The second involves taking on the banks' toxic assets in the state-run "bad bank" - the National Asset Management Agency (Nama).

Irish banks invested heavily in the commercial property sector

On Tuesday it announced that it would buy 1,200 bad loans from the banks for a total of 8.5bn euros - less than half their face value.

Speaking before the announcement, Eoin O'Callaghan, European economist at BNP Paribas, said the transfer of bad loans was important progress.

"This is the start of the plan… designed to cut the vicious circle in Ireland whereby banks aren't lending in to the economy, which is making things worse and making their own loan portfolios less likely to be paid back, making the banks even less likely to lend," he told the BBC.

Contrasting fortunes

Irish plans to increase taxpayer stakes in the major banks are in contrast to the position of other countries hit by the financial crisis.

In the US, several bailed-out banks have recovered sufficiently to repay the government aid they received.

This month the US government announced plans to sell back its 27% stake in Citigroup - one of the banks hardest hit by financial crisis.

In UK, the government is expected to consider selling back its stakes in Lloyds Banking Group and Royal Bank of Scotland later this year.

Expectation of further action by the Irish government has caused bank shares to fall again on Tuesday, following sharp falls on Monday.