€3bn State cash injection for Anglo

 

MINISTER FOR Finance Brian Lenihan has dipped into “cash balances” held by the Exchequer in the Central Bank to provide €3 billion in new capital for the nationalised Anglo Irish Bank, the first cash injection into an institution which may ultimately require €7.5 billion from the State.

Anglo’s recapitalisation came as a senior official with Moody’s credit rating agency said Ireland’s top credit rating is on the “borderline” of a downgrade. Moody’s, which has its AAA rating on Ireland under review for a downgrade, is the only leading agency not to withdraw its triple A rating.

Ireland has “lost a lot of altitude in the AAA space and they have a situation which is borderline AA”, said analyst Pierre Cailleteau, head of Moody’s sovereign risk group.

The funding of Mr Lenihan’s recapitalisation of Anglo yesterday came from a different source to the €3.5 billion that the State gave to both AIB and Bank of Ireland. Those institutions were recapitalised with money from the National Pension Reserve Fund, which cannot invest in non-listed banks.

While Anglo expects to receive a further injection of up to €1 billion from the State, this is subject to “further discussions” with the Department of Finance on the terms of a debt repurchase programme. Even after it receives this money, Anglo has publicly indicated that it may require further capital of up to €3.5 billion from the Government to help it bear the cost of a sharp escalation in bad loans.

The recapitalisation follows approval for the transaction last week by the European Commission. The Government’s provision of the additional €1 billion for debt repurchase is seen as inevitable in light of the commission’s statement that Anglo will use part of the State capital to buy back at a significant discount debt issued to investors in order to boost its equity capital.

The transaction yesterday follows completion in recent days of a “subscription agreement” between the Anglo and the Government.