State gives further €2 billion in capital

REVISED PLAN FOR ANGLO IRISH BANK:THE GOVERNMENT has committed a further €2 billion in capital to Anglo Irish Bank to cover losses on the first loans moved to the National Asset Management Agency (Nama) and other loans remaining on the bank's books.

This sum is in addition to the €12.3 billion already pledged to the loss-making nationalised bank and the first instalment of up to a further €10 billion which the Government said Anglo would need.

The €14.3 billion sum so far committed to Anglo by the Government over the past year comprises €4 billion in cash and €10.3 billion pledged by way of a promissory note, effectively an IOU, to be drawn down over 10 to 15 years.

Minister for Finance Brian Lenihan issued the promissory note of €8.3 billion to the bank at the end of March but a higher-than-expected discount applied by Nama on the first loans meant the bank required another €2 billion.

The Government adjusted the promissory note last Friday, raising the amount pledged by €2 billion to €10.3 billion and bringing the bank’s capital levels to the minimum level demanded by the Financial Regulator.

The European Commission approved the Government’s capital commitments on March 31st under EU state-aid rules.

Mr Lenihan said at the end of March that Anglo might require further capital of up to €10 billion in addition to the €12.3 billion already injected or pledged.

This was to cover higher loan losses and the cost of the bank’s proposed restructuring plan.

Nama applied a discount of 55 per cent on the first €9.3 billion in loans linked to the 10 biggest borrowers purchased from Anglo.

The bank had earmarked €10 billion in loans for transfer in the first tranche but €700 million was withheld due to poor documentation and collateral. It is expected the bank will require further capital when the second tranche of loans linked to the next 20 biggest borrowers starts transferring to Nama later this month.

The Department of Finance said that further capital requirements will depend on the discount applied to the remainder of the total €36.5 billion in loans moving to the State loans agency and further losses on the €35.6 billion in loans remaining on the books of the bank after the Nama transfers.

The bank set aside €3.7 billion to cover losses on non-Nama loans in the bank’s financial results for the 15 months to the end of 2009.

Anglo had expected a discount of 28 per cent on loans moving to Nama and the agency’s larger discount has meant the capital bill facing the Government could rise to as much as €22.3 billion.

The bank is working to reduce this amount through its plan to split the institution into a good bank and bad bank post-Nama.