Compromise deal may be on cards for Anglo Irish

Published on Tuesday 7 September 2010 22:24

Ireland's government outlined a compromise solution last night for winding down troubled Anglo Irish Bank, but failed to put either a price or a timeline on its plan.

Yielding to political pressure, finance minister Brian Lenihan ditched Anglo Irish's own plan to carve a functioning niche lender out of what is left of the nationalised bank when it transfers €36 billion (30bn) in property loans to Ireland's state-run "bad bank".

Instead, Anglo's remaining loans will be housed in an asset recovery bank, where they will be worked out over a period of time while its deposits will be put into a government-backed deposit bank which will not engage in any lending.

The capital cost of the plan - the final bill for which investors have been seeking - will be known next month when the central bank announces the units' capital requirements.

Ireland has already put nearly ?€23bn into Anglo since nationalising the small-business lender in early 2009. At the time, the government also bought minority stakes in the country's two biggest banks, Allied Irish and Bank of Ireland, becoming their largest shareholders.

The open-ended costs of keeping Anglo alive are fuelling worries about Ireland's ability to keep funding its own debt needs.

Ireland's deficit is already the highest in Europe in gross domestic product (GDP) terms because of the Anglo costs, and analysts warn that Anglo could cost taxpayers anywhere from ?€7-15bn more in the next few years. International investors increasingly view Ireland's investment in Anglo as unsustainable and expect EU chiefs to order the bank's gradual closure. The government insists that splitting Anglo into "good" and "bad" banks remains potentially the least costly option.

Entering the Cabinet meeting, Lenihan said: "A final resolution of the Anglo difficulties will be announced in a matter of weeks.

"We are satisfied that we can identify what the precise losses are in our most distressed financial institution and we can deal with those losses over time."

If Ireland receives EU approval to split Anglo in two, this would create a "good" Anglo that receives the institution's remnant of still-performing loans and retail deposit business.

The "bad" majority of Anglo - representing more than 80 per cent of its loan business chiefly to bankrupt property developers and speculators - would die once its toxic debts are written off or transferred to Ireland's national receptacle for dysfunctional property-based projects, the National Asset Management Agency.

The EU has yet to decide whether the latest billions being funnelled into Anglo and other banks will be included in Ireland's 2010 national debt calculations, or will be treated as off-book investments as Ireland hopes.If the former, economists expect Ireland's 2010 deficit to exceed 20 per cent of GDP; if the latter, the figure might decline to nearer 11 per cent.

In normal times, Ireland was required, like all members of the European common currency, to keep deficit spending under 3 per cent of GDP.