The Irish government will provide substantial cash injections to the country’s three biggest banks, and take a majority stake in Anglo Irish Bank in the first quarter of 2009. In a statement, finance minister Brian Lenihan said investments totalling $7.7 billion are to be made in Bank of Ireland, Anglo Irish Bank and Allied Irish Bank.

Irish prime minister Brian Cowen said in a statement that the objective of the investments is to “ensure that the financial system in Ireland meets the everyday financial needs of individuals, businesses and the overall economy.”

In Anglo Irish Bank, the government is making an initial investment of €1.5 billion, equalling a 75 per cent stake, so that the bank may remain “a sound and viable institution.” The investment will be made in perpetual preference shares with a fixed annual dividend of 10 per cent, pending a shareholder vote in mid-January.

Both Bank of Ireland and Allied Irish Bank have agreed to issue €2 billion of perpetual shares to the government, with a fixed annual dividend of 8 per cent.

This will give the government 25 per cent of voting rights on the appointment of directors, as well as control of a quarter of all directors on the board. Both agreements will come into force in the first quarter of 2009.

The government will make substantial additional capital available to underwrite the investments as required. But, Mr Lenihan added, he encouraged the banks to also seek investment from private interests.

Last month, the Irish Association of Investment Managers, which represents virtually all of the country’s investment management community, said the finance minister had approached some of its members to this end.

The move came just days after the resignation and replacement of Seán FitzPatrick, once praised as a key orchestrator of the “Celtic Tiger” economy of the late nineties. Mr FitzPatrick relinquished chairmanship of Anglo Irish Bank following revelations that he hid personal loans totalling €87 million from the bank for the past eight years by transferring them to another institution.

Although Mr FitzPatrick said in a statement that he had done nothing illegal, he admitted that “on reflection, [his actions were] inappropriate and unacceptable from a transparency point of view.” He was replaced by Donal O'Connor, who joined from PricewaterhouseCoopers where he was senior partner and a member of the global board.

Anglo group chief executive David Drumm and board member Lar Bradshaw also resigned last week. Mr Drumm said his decision was appropriate following the resignation of Mr FitzPatrick. His replacement has yet to be announced.

Mr Bradshaw departed after it was revealed he took out a joint loan with Mr FitzPatrick, which was temporarily transferred to the Irish National Building Society before the 30 September year-end.

Former Revenue Commissioners ( Ireland’s most senior taxation body) chairman Frank Daly and former centre-right finance minister Alan Dukes have also been installed on the Anglo board by Minister Lenihan.

The minister for finance said in another statement that the revelations would not affect the government’s capitalisation of the bank.

The state’s investment may stabilise the bank in the short term, but London-based analysts Collins Stewart advises investors to avoid Anglo.

“The Irish government is to take 75 per of voting rights at Anglo meaning it is state controlled though remains publicly-owned. In our view, this means the equity remains highly dangerous in the near-term. We would continue to avoid. Allied Irish and Bank of Ireland are relinquishing just 25 per cent of voting rights on “major decisions”. We would continue to avoid Anglo which could remain highly volatile,” the firm said.