THE GOVERNMENT will seek to calm fears about the cost of bailing out State-owned Anglo Irish Bank by announcing a final estimate of about €28 billion to €29 billion tomorrow evening, rising well above €30 billion under a worst case or “stress” scenario.
However, the potential higher cost is expected to be below the €35 billion cited by credit ratings agency Standard and Poor’s.
The Government has so far injected or committed €23 billion to Anglo.
In a major announcement expected after European markets close tomorrow, the Central Bank will unveil an estimate in the lower range, rising to the potential higher cost should losses rise on further market declines.
The Government may also outline details of a further State recapitalisation of Allied Irish Banks, which has to raise €7.4 billion by the end of the year, in an attempt to draw a line under wider concerns about the banks.
The lower estimated figure to be unveiled for Anglo will include the cost of fresh capital for the funding and asset recovery banks to be set up out of Anglo under the Government’s 15-year wind-down plan for the bank.
This will meet minimum capital rules up to the end of 2012 but the banks may need more capital beyond this date should losses rise.
Higher expected losses are being applied to Anglo than the measures used to stress test AIB and Bank of Ireland last March, reflecting market declines since then.
The estimated costs are being finalised and may change, following further consultation.Plans to buy back some Anglo bonds to generate capital may also be announced.
Concerns about the Government’s ability to pay for the banking bailouts pushed Irish State borrowing costs to another record level, as the interest rate on 10-year Government bonds jumped close to 7 per cent.
The premium investors demand to hold 10-year Irish bonds over German debt hit a new high, rising to 4.75 percentage points.
Taoiseach Brian Cowen said a “manageable” plan to deal with Anglo would be presented shortly. “We are trying in every way to be transparent and upfront about the quantity of losses so that people in the international community can see that we are doing all we can,” he said.