DUBLIN (Bloomberg) — Ireland will pump 5.5 billion euros ($7.7 billion) into its three largest banks and take control of Anglo Irish Bank Corp. to protect the nation's financial-services industry from collapse after credit markets froze.

The government will inject 1.5 billion euros into Dublin- based Anglo Irish in return for preference shares with 75 percent of its voting rights, the government said yesterday. Allied Irish Banks Plc and Bank of Ireland Plc will each get 2 billion euros.

Ireland, which was the first country in Europe to guarantee all bank deposits, is being forced to use public money after initially urging the banks to seek private investors to assist in the country's bank bailout. Since the guarantees on September 30, the ISEF financial index has plunged 72 percent as lenders' capital was eroded by bad loans to homeowners and property developers in Ireland and the UK.

"The recapitalisation announced today will provide the banks with the stability required to continue to lend to meet the needs of the Irish economy," Prime Minister Brian Cowen said in a statement yesterday.

The preference shares issued by Anglo Irish will pay the state a fixed 10 percent annual dividend. The Bank of Ireland and Allied Irish shares will pay an eight percent dividend and the government will have 25 percent of the voting rights on "key issues" such as change of control and capital structure.

The state is also prepared to underwrite the issue of further shares, and both Allied Irish and Bank of Ireland have indicated an interest in the underwriting of up to one billion euros each, according to the government statement.

The dividend is lower than the dividend of about 12 percent the UK government has charged British banks that tapped it for new capital. Irish Finance Minister Brian Lenihan said the government reviewed other bank investments and "didn't want to charge too high a price to restrict lending".

Irish financial shares have fallen on average 92 percent this year, led by Anglo Irish, which has plunged 97 percent. The government's move to recapitalise the banks comes days after Anglo Irish's chief executive officer David Drumm and chairman Sean Fitzpatrick resigned over the chairman's non-disclosure of 87 million euros in loans he received from the bank. Anglo Irish said earlier this month it will provide an additional 500 million euros to cover rising loan losses.

Donal O'Connor, who replaced Fitzpatrick as chairman, said in a separate statement yesterday that Anglo welcomed the investment, which ensured the lender "will continue to be a sound and viable institution".

The recapitalisation follows the global financial crisis that has compounded Ireland's property-led slump. Construction is contracting at a record pace, house prices have fallen ten percent in the last year and the overall economy may shrink as much as four percent next year, according to the government.

Ireland's financial regulator said in October 14 that the six lenders covered by the government guarantee have about 39 billion euros in speculative property loans.

The finance ministry said today that while it has a "substantial pool" of additional capital available, it encourages the banks to seek private money. Bank of Ireland, which opened its first branch in Dublin in 1783, said last month that it received "approaches from a number of parties" looking to invest in the company. The bank's first-half profit fell 32 percent on rising bad debt provisions.

Allied Irish last month said that it had "several options" to boost capital levels, including selling its stake in its US and European units.

Separately, a group of unidentified fund managers approached the finance ministry last month about investing in the banks alongside the government and hired Deutsche Bank AG to advise them. Irish Life & Permanent Plc, the country's biggest mortgage lender, is in talks to merge with EBS Building Society.

Capital ratios for the six lenders covered by the guarantee are greater than those required by regulators, the government said last month, citing a report prepared for it by PricewaterhouseCoopers LLC.