Ireland says its bank bailout may cost $68 billion

Ireland is preparing to take majority control of Allied Irish Banks and pump extra cash into Anglo Irish Bank, raising the cost of repairing the financial system to as much as ¤50 billion ($68 billion).

“The Irish banking system is at rock bottom today,” Finance Minister Brian Lenihan said today in a Bloomberg Television interview in Dublin. He rejected speculation Ireland will need outside help. “It can only revive from now because it’s recapitalised and reformed,” he said.

Ireland’s deteriorating finances fuelled investor concerns that it would become the first government after Greece to tap the ¤750-billion rescue fund set up by the European Union and International Monetary fund to stanch the debt crisis. Irish bonds have plunged this month, sending the yield on 10-year securities to higher than any other euro nation except Greece.

The cost of bailing out the country’s banks may ultimately rise to about ¤50 billion, under a “stress case” scenario for Anglo Irish, according to figures published by the country’s finance ministry and the central bank in Dublin today. The base case estimate is about ¤45 billion, the figures show. Allied Irish may need as much as ¤3 billion.

Among the biggest Irish lenders, only Bank of Ireland and Irish Life & Permanent will remain outside state control after the bailouts.

‘Believable guidance’
“Investors have been looking for clarity and believable guidance on how bad things are,” said Padhraic Garvey, head of developed-market debt strategy at ING Groep in Amsterdam. “This morning should go some way to satisfying such calls.”

Ireland has pumped ¤22.9 billion into Anglo Irish since it seized the lender in January 2009 as its bad loans soared following the collapse of a decade-long real-estate bubble.