Ireland seizes control of Allied Irish Banks

Using a new mandate that gives the government unprecedented power over banks, Ireland’s finance minister, Brian Lenihan, said he would transfer $4.85 billion from the country’s pension reserves into Allied Irish to guard against loan losses, and delist it from major stock exchanges, largely wiping out shareholders.

The move, which was required under the terms of a $88.5 billion international bailout by the Irish government last month, came as Dublin tried to persuade investors that it could handle a crisis that started in Greece and was spreading to other debt-ridden nations, including Portugal and possibly Spain.

The Fitch Ratings agency cut Portugal’s credit rating yesterday by one notch to A, and warned of further downgrades as the government struggles to whittle its debt and deficit and its banks confront a difficult environment. Portugal was downgraded earlier in the week by Moody’s Investors Service, which had also slashed Ireland’s credit rating a few days earlier, citing concerns that the cost of stabilizing Irish banks could be higher than expected.

“Dealing with Allied is positive,’’ said Oliver Galvarry, the head of research at Dolmen Securities in Dublin. “But pressures on Portugal and Spain will hit anew in January, so investors will again be looking hard at Ireland’’ to determine whether its problems are under control.

During the boom years before 2008, Allied was one of several Irish banks that borrowed cheaply and pumped out loans on houses and construction projects. That helped fuel an American-style housing bubble that went bust, digging a hole in the nation’s finances as the government paid for the losses.