BANANA REPUBLIC; BUNGLING BANKS GET OUR EUR7BILLION Allied Irish and BoI get EUR3.5bn bail-out each State holds 25% of firms & puts cap on fat-cat wages Cowen and the public being 'made monkey of'.

Byline: BY AINE HEGARTY POLITICAL EDITOR

FINANCE Minister Brian Lenihan last night unveiled his plan to pump EUR7billion of taxpayers' money into Allied Irish Bank and Bank of Ireland Mr Lenihan injected EUR3.5billion into each institution amid fears of mounting bad debts from developers and huge share price drops.

Under the plan, the pay of senior executives will be slashed by a third, bonuses will be scrapped and no rises will be given for last year or the next 12 months.

The minister also vowed to go a step further, and implement the Irish Daily Mirror's call for a cap on executive pay, similar to the one introduced by Barack Obama.

Mr Lenihan said: "I am writing to a Dail committee urging them to set very definite caps on the remuneration of higher level executives.

"The Government is so concerned about the issue that in advance of the report we have sought commitments from the banks executive caps would be fixed."

In return for our EUR7billion, the two banks have agreed to delay repossessions of family homes until 12 months after arrears begin.

Mr Lenihan added: "The recapitalised banks have, in addition, assured Government that in the normal course of events they will make every effort to avoid repossessions."

The two firms have also agreed to a 10 per cent increase in lending to small businesses, a 30 per cent increase to first buyers and a EUR100million eco innovation fund from each bank.

But the Government will have the power to select just 25 per cent of board members in both banks.

Mr Lenihan defended this low amount saying any larger figure would look like the state was controlling these banks and this would send out a "negative" signal to the international markets.

He insisted the Government does not intend to take-over AIB and Bank of Ireland.

Instead the Government will take a holding through preference shares which can be bought in five years time at a low price if the stock market value of each company increases.

He said: "The state will not hold ordinary shares in either bank... but it will have an option to buy shares in five years time at a predetermined strike price, thus providing the state with the potential for a significant return."

Fine Gael slammed the plan last night as "a EUR7billion gamble on the wrong horse."

The party's finance spokesman Richard Bruton said this approach had failed to kick-start lending in other economies.

Mr Bruton added: "Given the unknown size of the bad debts in each bank, taxpayers are now in danger of putting in the huge sum of EUR7billion but only have banks nurse along dodgy property loans, while continuing to starve viable businesses of access to credit."

Mr Bruton also criticised Brian Lenihan for pumping taxpayers money into "into unreformed and unreconstructed banks with bad debts.

The Labour Party said it was a missed opportunity to implement real bank reform.

Its finance spokeswoman Joan Burton said: "On virtually all the crucial issues it appears that, yet again, the banks have been allowed to dictate the terms."

She also claimed bank bosses will still be raking it in because the salary deal was "far too generous".

Meanwhile, it was claimed fat-cat bankers have made "monkeys" out of the Government after convincing it to hand over the 37billion.

Mr Lenihan was under intense pressure to resign last night after admitting he did not read parts of a crucial report outlining secret billion euro loans between Irish banks.

He said the report was on his desk since last October but he did not find out about the EUR7billion loan until January as he did not read it entirely.

When asked by TDs how he could have missed a EUR7billion loan, the minister added: "I did not read that particular passage in the report." It has also emerged officials in the Finance Department knew about the EUR7billion transfer from Irish Life & Permanent to Anglo Irish Bank but never told the minister.

When Mr Lenihan learned of the loan last month when his officials reported it to the Financial Regulator, he never told the Taoiseach, Cabinet or Dail. The latest scandal about loans to Anglo erupted just hours before Mr Lenihan agreed to pump the EUR7billion into Allied Irish Bank and BOI.

Yesterday, Anglo Irish Bank was accused of falsely boosting its year-end accounts on September 30 - the day the Government unveiled a EUR440billion scheme to guarantee all deposits. IL&P lodged up to EUR7billion with troubled Anglo by that date but the money was taken out 10 days later.

The scandal-ridden bank was yesterday accused of deceiving shareholders and the Government by "cooking the books" using "Enron-style" transactions which amounted to "fraudulent financial reporting".

Fine Gael and Labour called for Mr Lenihan to resign, saying there was "no excuse" for him not reading the report.

Labour walked out of the Dail in protest, claiming the minister wasn't properly answering questions.

Leader Eamon Gilmore accused the Taoiseach of handing over the deeds of the country to bail out the banks in a guarantee scheme without having complete information. He told the Taoiseach: "If the banks weren't telling you what was really going on in the banks at the time you were coming in here, they were making a monkey out of you.

"And they were making a monkey of the public that was being asked to put up the state guarantee."

Fine Gael last night called for the Garda fraud squad to be sent into Anglo "to investigate the conduct of senior board members".

Lucinda Creighton said: "The fraud squad is now the only body which can get to the bottom of the rottenness which appears to have taken root at the core of Anglo Irish Bank.

If banks weren't telling you what was really going on then they were making a monkey out of you...

EAMON GILMORE

CAPTION(S):

PRESSURE Finance Minister Brian Lenihan now faces calls to resign