Restructured Anglo to focus on business lending

STATE-OWNED Anglo Irish Bank plans to restructure itself as a business lender after ruling out liquidation or winding down the entire bank over a prolonged period.

The bank believes these options would have “a severely negative and long-term consequence” for the financial system.

The bank’s chief executive, Mike Aynsley, told staff that Anglo planned to divide the bank into a good bank and bad bank in “a radical corporate restructuring” and that the bad element of the bank would be run down over time.

The splitting of the bank would follow the transfer of €28 billion in property and associated loans to the State’s National Asset Management Agency (Nama), which will leave behind loans of €44 billion.

“Having considered numerous scenarios to stabilise the bank, we have concluded that the interests of all stakeholders can be best served through a radical corporate restructuring, resulting in a hybrid solution of winding down ‘old Anglo’ and the creation of a ‘new bank’,” he said in an e-mail to staff.

Old Anglo would become an asset run-off company that will focus on managing legacy issues and a portfolio of troubled loans, said Mr Aynsley.

“Old Anglo would not engage in any new lending or deposit-taking activities and would be wound up on an orderly basis over time.”

Anglo’s new bank would “support loan growth to the business sector as the market recovers, contributing to the stimulus required for the Irish economy and acting as a platform that assists the Irish financial system as it rebuilds and grows”, Mr Aynsley said.

The Irish Timesunderstands that Anglo intends to make further external appointments to key long-term senior roles, but that internal managers may be appointed to a number of positions within the 10-strong interim management team over the next three weeks.

Mr Aynsley said very good progress had been made on setting up a new management team at the bank and he was close to announcing a number of key appointments.

“Some will be internal, but a number of the key positions will be external hires,” he said.

“Many of the positions require Financial Regulator sign-off and approval is being sought – when received I will be in a position to announce specific appointments,” he added.

The restructuring plan is expected to involve additional Government capital injections to cover both rising loan losses within the bank as well as new investment into Anglo’s new bank division.

Under EU guidelines the bank was “required to consider all strategic options including liquidation, wind down, stabilising the bank and consideration of far-reaching restructuring,” said Mr Aynsley.

“The bank and its advisers have concluded that both liquidation and wind-down scenarios would have a severely negative and long-term consequence for our numerous stakeholders and the entire Irish financial system.”

Anglo hired accountants KPMG to cost the various options facing the bank including liquidation and continuing as a going concern.

Mr Aynsley did not disclose the cost of the options to bank staff.

KPMG concluded that Anglo continuing as a going concern was the least expensive option for the State as winding down the entire bank over a five-year period may damage the wider economy and property valuations within Nama’s planned 11-year lifespan.

Anglo’s restructuring plan and the Government’s €4 billion capital injection have to be approved by the EU Commission under state aid rules. The bank must prove that it has a viable future or else show plans to be wound down.

The bank is to submit the plan to the commission on November 30th and then “conduct an initial fact-finding process”.

Once completed, negotiations with the commission will begin “and as a consequence of these discussions, details within the plan may change”, said Mr Aynsley.

Anglo does not plan to wind down the bank’s operations in the UK and US where it has loans of €18.7 billion and €10.3 billion respectively. Mr Aynsley said that Anglo intended that the new bank would “focus on maximising the value in existing portfolios and pursuing opportunities that link with our core Irish business”.