Taoiseach Brian Cowen has defended the Government’s recapitalisation of Anglo Irish Bank, insisting the bank was of “systemic” importance to the economy.
Speaking in Youghal, Co Cork today, Mr Cowen said the failure of Anglo could not be contemplated.
Anglo Irish said yesterday it may require additional capital of up to €3.5 billion from the Government to help it bear the cost of a sharp escalation in bad loans even after it received the €4 billion promised yesterday by Minister for Finance Brian Lenihan.
Support of that scale would bring the total Government cost of recapitalising Anglo, Allied Irish Banks (AIB) and Bank of Ireland (BoI) to €14.5 billion. AIB and BoI have already received €3.5 billion from the State. Mr Lenihan believes BoI will not require more capital when its loans move to the National Asset Management Agency (Nama), but has not made any findings in respect of AIB.
Anglo, whose affairs are under Garda and regulatory investigation, incurred a pretax loss of €4.1 billion in the six months to March as the value of land and development assets plummeted. While taking a €4.1 billion impairment charge, Anglo said that the level of “past due” and “impaired” loans rose to €23.6 billion in March from €2.5 billion in September.
“In my view, it is a disgrace that this bank evolved into the institution it did,” Mr Lenihan said.
Anglo executive chairman Donal O’Connor said it was clear that the bank made mistakes in some of its lending in recent years, particularly in relation to property.
Fine Gael finance spokesman Richard Bruton said international investors must accept losses on loans to Anglo before the recapitalisation.
He said Anglo should be “wound up in an orderly manner” to protect taxpayers, but Mr O’Connor and Mr Lenihan said a wind-up would cause greater damage. “If you close it down, €64 billion in customer and interbank deposits would be called into question,” Mr Lenihan said.
Anglo wrote off €308 million from “golden circle” loans made last year to 10 clients to fund their purchase of a big stake in the bank in an effort to prevent a further collapse in its share price. It wrote off €31 million on loans to former directors but declined to name them.
Pending EU approval for the recapitalisation, the Financial Regulator temporarily waived strict rules that require Anglo to maintain a certain amount of capital.
“The €4 billion is obviously a major step to putting the bank on a firmer footing and everyone in the bank is obviously very grateful to the Government and the taxpayer for that,” Mr O’Connor said.
While this will enable Anglo to bear potential losses of €7.5 billion, the bank said it might incur further impairments of €1.5 billion to €3.5 billion when loans go to Nama. Assuming no other change, its capital would have to be replenished to bear such losses.
Anglo put its audit contract to tender, but said it has not sacked current auditors Ernst Young.