Fresh State capital likely to be required for Anglo

INTERIM RESULTS from the nationalised Anglo Irish Bank are expected to show a requirement for significant new capital from the Government if the institution is to continue as a going concern.

Accounts for the six months to March are likely to reflect a sharp increase in bad loans since the start of Anglo’s fiscal year in September, a period in which a scandal over secretive loans given to former chairman Seán FitzPatrick quickly culminated in the Government’s decision to nationalise the bank in January.

As the bank’s directors prepare to sign off on its first-half accounts, they will have to form a view as to level of loan write-downs the books should reflect. With loan quality deteriorating rapidly in tandem with the worsening economic situation, a large impairment is increasingly likely.

However, it is believed that the precise level of impairment remains under discussion by the bank’s directors. Ranking high among the uncertainties surrounding the level of impairment to take are questions around the impact on Anglo of the establishment of the National Asset Management Agency. Although the agency is unlikely to be in place for up to a year, Anglo must soon finalise its interim report for publication some time next month.

Whatever the ultimate scale of impairment, it will deplete Anglo’s capital base. It is likely to be of such scale, however, that a large amount of new capital will be needed from the Government if Anglo is to keep its capital ratios within regulatory limits.

Having committed €7 billion for the recapitalisation of Allied Irish Banks (AIB) and Bank of Ireland in the midst of a collapse in the public finances, this would further add to the burden on Minister for Finance Brian Lenihan.

Anglo’s own officials have conducted a detailed, loan-by-loan analysis of the bank’s asset quality in the months since nationalisation. This internal exercise, described as a “fundamental” review, is said to provide a very clear picture about the weakened position of the bank’s loan book.

In light of that, the Government recently instructed accountants PricewaterhouseCoopers (PwC) to conduct a separate analysis of the loan book to verify the findings of the internal review. Such work follows on from PwC’s examination of Anglo last autumn in the wake of the Government move to guarantee the liabilities of the entire Irish banking system.

PwC found then that the bank’s biggest clients had been mothballing development projects, running up interest bills and trying to sell off assets. A number of clients with interests in shopping centres and land banks in Dublin area had cashflow difficulties and were disposing of non-core and trading assets. Loan quality is said to have worsened appreciably since then.

A spokesman for the Department of Finance declined to comment on Anglo’s affairs, referring questions to the bank. The bank’s spokesman declined to comment.

Mr FitzPatrick’s loans, multi-billion-euro deposits from Irish Life Permanent and the sale last year of a 10 per cent stake in Anglo to a circle of wealthy clients are being investigated by several regulatory authorities.