Anglo proposes shrinking by 80%

RESTRUCTURING PLAN:ANGLO IRISH Bank proposes creating a good bank with a loan book of between €12 billion and €15 billion under the revised restructuring plan submitted to the European Commission yesterday.

The bank has assessed the quality of its loan book and believes that the bank could shrink to about a fifth of its current size and then operate as “a mid-sized commercial bank” in the Irish market.

This would result in up to €24 billion in impaired or troubled loans being moved to an internal bad bank and run down over time.

These loans would be moved from those remaining at the bank after the transfer of €36.5 billion in loans to Nama.

Anglo is seeking EU approval to split into a good bank and bad bank, arguing that this would be the cheapest option for the State.

Under the revised viability plan, the bank responded to 101 questions raised by the commission on the bank’s initial restructuring plan submitted last November.

The Department of Finance said that discussions between the commission, the department and Anglo on the viability plan would continue and “the future of the bank will be determined by those discussions”, the department said.

Minister for Finance Brian Lenihan has said the “overriding objective of the Government is to minimise the cost to the taxpayer of the restructuring”.

The commission asked Anglo to provide a cost of a wind-down of the bank over 20 years under revised proposals.

The bank had previously assessed the cost of liquidating Anglo over a year or winding the bank down over 10 years under the scenarios involving the closure of the bank. Anglo has said that splitting the bank would require between €13 billion and €22 billion in Government capital, while a 10-year wind-down would require between €19 billion and €30 billion in capital.

The State would also incur further funding costs under both scenarios as the Government would have to meet any shortfall in deposits withdrawn as a result of the planned closure of the bank.

The bank assessed the cost of a 20-year wind-down as sought by the commission – similar to a request sought from the UK bank Northern Rock – and concluded in the revised plan that the Government capital required would be of a similar scale as in a wind-down.

However, the bank found the extra cost of meeting the funding shortfall would be pushed out over the 20-year wind-down timeframe.

Anglo referred to its proposal to take control of the beleaguered Quinn Insurance with a trade partner in the revised restructuring plan.