Anglo cost to be at least €29.3bn


The Government has today announced a final estimate for the cost of the Anglo Irish Bank bailout of at least €29.3 billion and has said AIB will require an additional €3 billion in funding and Irish Nationwide a further €2.7 billion.

The Anglo figure of €29.3 billion is based on a haircut of 67 per cent on the remaining €19 billion in loans to be transferred into the National Asset Management Agency (Nama) before the end of the year.

The Central Bank said the final cost may rise by another €5 billion to €34.3 billion in the event of unexpected losses, namely if the Nama haircuts to the bank’s loans reaches 70 per cent.

Today’s announcement will bring the cost of the overall State bailout of the banks to some €45 billion, with the prospect of this rising to about €50 billion under worst-case scenario losses at Anglo if commercial property prices fall 65 per cent and do not recover for 10 years.

The prospect of the Government taking a majority shareholding and control of AIB, possibly over 90 per cent, is now inevitable. That will bring a fourth financial institution under State control following the bank bailouts.

In a bid to speed up the Nama transfers, the Central Bank has said that the threshold for individual loans at AIB and Bank of Ireland for transfer to the agency will rise from €5 million to €20 million, reducing the amount of loans Nama will be in total by €6.6 billion from about €80 billion.

This, the Minister for Finance Brian Lenihan said, will allow for the completion of all Nama loan transfers by the end of the year.

The Government has already injected €23 billion into Anglo. Some €16 billion of a projected €35 billion in Nama loans have transferred from Anglo in two tranches to date. The average haircut on these first two tranches was 58 per cent.

The announcement for the need for a further €3 billion in capital at AIB is in addition to the €7.4 billion target set in March that it needs to raise this year. AIB’s funding bill is rising due to higher than expected discounts on €23 billion in loans being sold to Nama, which is removing the most toxic loans from the banks.

Following the Central Bank’s announcement, AIB said that the bank’s managing director Colm Doherty would be stepping down before the end of the year and executive chairman Dan O’Connor would leave the bank within the coming weeks.

Bank of Ireland has sufficient capital to meet requirements, while EBS building society, which is up for sale, has been warned it will need to take account of higher haircut levels of up to 60 per cent in its capital planning.

There was no capital assessment of Irish Nationwide, which is still in talks with the Central Bank over its restructuring plans, though Mr Lenihan said that the State bailout of the building society would double to €5.4 billion.

Irish Life and Permanent, which did not lend to property developers and is not transferring any loans to Nama, is unaffected.

Mr Lenihan said today’s final figures for repairing Ireland’s banking system would provide reassurance to investors.

“As has already been signalled, this statement confirms that additional capital support will be required by some of our banks and building societies,” he said. “The overall level of State support to our banking system remains manageable and can be accommodated in the Government's fiscal plans in the coming years.

Central Bank governor Patrick Honohan said: “Taking account of Nama's estimates of future haircuts has implications for required capital injections which need to be acted on now.

"The new calculations give clarity and as much certainty as can reasonably be expected to the budgetary cost of the bank restructuring."

Mr Honohan said the additional budgetary costs - and in particular the higher debt-to-GDP ratio that is implied - "confirm the need for a reprogramming of the budgetary profile, though it is important to recognise that the bulk of this reprogramming need arises from other sources".

He added the latest bailouts take the Irish banking system "closer to a final resolution of its restructuring".

The head of financial regulation at the Central Bank, Matthew Elderfield, said: “We have today confirmed that we are pressing ahead with our plans to require the Irish banks to meet more rigorous capital requirements which are closely aligned with the new international standards set by the Basel Committee and to do so by the year end.

"As part of this process, we have advised the banks that they need to take account of developments in the Nama haircuts which have occurred during the course of the year."

Concerns about the Government’s ability to pay for the banking bailouts have pushed Irish State borrowing costs to record levels.

Referring to a “manageable” plan that would be presented to deal with Anglo, Taoiseach Brian Cowen had said: “We are trying in every way to be transparent and upfront about the quantity of losses so that people in the international community can see that we are doing all we can."