Anglo claims €25bn is total cost

 

The cost of Anglo Irish Bank to the State will not rise above the current estimate of €25 billion if the National Asset Management Agency does not pay any less for loans yet to be transferred and unexpected sums are not lost on large client loans, the bank said.

Anglo yesterday reported the worst ever half-year results in Irish corporate history, incurring a loss of €8.2 billion for the first half of this year.

The cost of Anglo has grown to €22.88 billion, but the bank said this would rise to about €25 billion based on the value Nama had assigned to loans just purchased.

It also emerged that Anglo may have to repay up to €50 million to business customers after uncovering overcharging on loans in the period between 1999 and 2004.

The bank is carrying out an investigation to determine the number of customers affected, and whether the incorrect interest rates were applied deliberately.

Anglo chief executive Mike Aynsley defended management’s plan to split the nationalised lender into a good bank and a bad bank, saying it was the lowest cost option facing the State and that it had Government support. He said the good parts of Anglo, which would amount to no more than 20 per cent of its original size, would eventually be sold or merged with another bank and the remainder wound down over time. “The bank is effectively being closed,” said Mr Aynsley.

Minister for Finance Brian Lenihan said he was in talks with the European Commission to bring finality to the problem of Anglo, and expected Brussels to rule on the plan within weeks. He said the Government had sent its final submission on Anglo’s future to the commission.

Mr Aynsley said the current €25 billion estimate of the cost of Anglo to the State was based on Nama writing off 60 to 65 per cent of the remaining €19 billion in loans yet to be acquired.

Every additional 5 per cent written off on Nama-bound loans would require a further €1 billion.

Anglo has also set aside further sums to cover potential losses on the €2.8 billion owing by Sean Quinn and his family, whose company Quinn Insurance is for sale.

Mr Aynsley had no comment on Quinn, but said Anglo may need further capital – on top of the €25 billion – if it makes unexpected losses on large customers. The Government and Opposition parties last night clashed over Anglo’s economic importance at the time of the State guarantee.

Mr Lenihan took issue with the Opposition’s claim that the bank was not systemically important when the Government guaranteed the banks in September 2008.

Labour’s finance spokeswoman Joan Burton had contended that the €8.2 billion loss reported by Anglo confirmed that the bank was never of systemic importance. “They show instead that it has become systemically destructive of Ireland’s capacity to recover and to restore its banking system,” she said.

“Anglo Irish is not just the biggest bank failure in Irish economic history, either before or since Independence, it has also turned out to be one of the biggest corporate failures anywhere in the world.”

In response, the Minister claimed the bank was systemically important as it had over 250,000 depositors at the time of the guarantee.

“Is Deputy Burton saying that the Labour Party would have allowed the bank to collapse, thereby destroying the savings of those depositors?”

Mr Lenihan accepted that the losses were unacceptably high.

Contradicting his Government partners, the Greens, he said the only option of winding down Anglo was where this occurred over a long period, and not a quicker wind-down, as proposed by the Greens. This, he said, would cost the taxpayer more.

Fine Gael finance spokesman Michael Noonan said the rising cost of Anglo suggested that the estimated cost of €35 billion from ratings agency Standard Poor’s last week might be accurate.

He said the very wide range of the September 2008 guarantee made it impossible to negotiate discounts on guaranteed loans.“We need to be told the solution that will cost the taxpayer the least as the bank has no economic importance. It is one that we could well do without.”

Anglo chief financial officer Maarten van Eden said the bank had played “Russian roulette”, lending recklessly and at 100 per cent levels into a property market which it believed would never fall.