Government and regulator to back Anglo publicly

THE NATIONALISED Anglo Irish Bank is set to receive public declarations of support from the Government and the Financial Regulator today when it reports a huge rise in loan losses in the first half of its financial year.

Specific and collective impairment charges will be slightly in excess of €4 billion, it is understood, leading Anglo to breach strict capital rules set out by the regulator. The losses mainly reflect a rapid deterioration in the quality of the bank’s Irish loan book in the six months to March.

This was a tumultuous period for Anglo, in which acute controversy over undeclared director’s loans to former chairman Seán FitzPatrick culminated in the Government’s seizure of the bank in January.

The FitzPatrick loans are the subject of regulatory inquiry, as are deposits of €8 billion lodged in Anglo by Irish Life Permanent last year, and a placement of a 10 per cent stake in Anglo last year to a group of wealthy investors.

Anglo’s losses reflect the outcome of a loan-by-loan assessment of its loan book, which was overseen since nationalisation by Mr FitzPatrick’s successor, Donal O’Connor. This was cross-checked by accountants PricewaterhouseCoopers, who examined the book at the direction of the regulator.

Minister for Finance Brian Lenihan is preparing a statement today in which he is likely to reiterate Anglo’s “systemic” position and signal the Government’s intention to provide new capital to the business. His aim will be to stabilise Anglo, derisk its balance sheet and restructure its organisation.

The comprehensive nature of that project means that Anglo’s capital requirement may well exceed €3 billion, more than twice the €1.5 billion in capital that the Government was willing to provide before it took control of the institution. The money will not be made available until EU approval is received and the bank meets certain conditions, including Cabinet approval for a draft business plan from Anglo’s board.

In light of that, the regulator is prepared to grant a temporary waiver from its capital rules to enable Anglo to continue trading until its balance sheet is bolstered with new capital. The derogation will be highly conditional and it is likely to expire before the end of Anglo’s fiscal year in September.

The regulator’s manoeuvre will provide Anglo with scope to prepare for its property and development loans to be moved into Nama, the National Asset Management Agency.

Anglo is already exercising forbearance with many big clients, some of whom are indebted by hundreds of millions of euros. Following a warning from Mr Lenihan that the Nama process would lead “hopelessly insolvent” borrowers into bankruptcy and liquidation, the position of those clients will come under close review when their loans go to Nama.

The increase in loan losses in Anglo will be scrutinised by stock market analysts who track the performance of Allied Irish Banks and Bank of Ireland. While Mr Lenihan has said Bank of Ireland may not require additional State capital when its loans are transferred into Nama, he has yet to reach a conclusion on AIB.