Bank 'effectively being closed' under split plan

 

INTERVIEW:ANGLO IRISH Bank chief executive Mike Aynsley has said the bank is effectively being shut down under management’s proposal to split the nationalised lender into a good bank and bad bank.

The bank had found that the lowest cost to the State was the splitting of the bank with the winding down of at least 80 per cent of the loans and the creation of a viable bank from the remaining good loans, he said.

The European Commission has yet to approve the plan, but Mr Aynsley said Anglo was “extremely advanced” in discussions with Brussels and expected a ruling by the end of next month.

The bank had received no indication in the talks that the commission was going to veto the split.

Winding down the whole bank would cost €20 billion – on top of the cost of the split, which stands at about €25 billion – he said.

Maarten van Eden, Anglo’s chief financial officer, added that the split option would also retain €47 billion of the bank’s funding, which would otherwise have to be provided by the Government.

This comprises €23 billion of customer deposits, €16.5 billion of wholesale funding and €7 billion provided by other banks, he said.

“The bank is effectively being closed,” said Mr Aynsley. “And a new bank is being created using the infrastructure of the old platform,” added Mr Van Eden, “but people don’t want to hear that.”

Once a small, viable and good bank had been created, it was “natural” that this would eventually be sold or merged with another bank.

“The lowest cost to the taxpayer is to keep a small banking operation that can be used usefully as part of the banking landscape in the future,” said Mr Aynsley.

People were wrong to think that the 80 per cent-plus of Anglo loans that will be wound down would “go away”, he said; they were loans on office blocks that had to be funded in the long term.

“Winding down the bank is a very attractive thing to talk about given the history of poor management and poor governance at Anglo and the public outrage at what has happened,” he said.

“But the reality is you cannot wind down these assets to the point where they disappear.”

“What can go away is existing funding,” said Mr Van Eden.

Anglo’s half-year report said that it was “not in full compliance” with regulatory requirements due to the short-term and concentrated nature of its funding.

The bank was funding itself with central banks and short-term funds “more than we would like”, said Mr Van Eden, “and there is this refinancing cliff building because the blanket guarantee runs out at the end of September”.

Uncertainty over Anglo’s future was jeopardising guaranteed corporate deposits placed with Anglo for less than three months.

“You cannot expect a corporate treasurer to keep his money with Anglo on an unguaranteed basis who doesn’t know what is going to happen to the bank,” he added.

Mr Aynsley has called for the Government to extend the blanket guarantee to stabilise the funding of the entire Irish banking sector, not just Anglo. “The sooner there is resolution around the future of Anglo the better,” he said.

As for Anglo’s past practices that have cost the State so dearly, Mr Van Eden said it was reckless and highly leveraged lending in a market that only went one way.

“It was Russian roulette and it went right for 20 years – prices went up for 20 years,” he said.

Holding the record of the highest six-month loss in Irish corporate history was “not something we are proud of”, he said.