The Government had wished to avoid nationalising Anglo Irish but the measure is now necessary to protect the stability of Ireland's financial system, the Minister for Finance, Brian Lenihan said at a press briefing this evening.
"No government wishes willing to proceed to the nationalisation of a bank if it can be avoided," he said, adding that last month's offer to invest €1.5bn in preference shares in the bank had been "the last option short of nationalisation
"The judgement of the Central Bank, the regulator, the government and the National Treasury Management Agency was that the option of full state ownership must now be implemented for this institution to protect the stability of the financial system.
The Government will not now have to invest the €1.5bn already promised, but some investment will have to be made to ensure that the bank can operate properly.
"Under this step, there isn't a need to fund the bank to that extent. However, there will be a need on the part of the State and the nationalised bank to ensure that all facilities are made available to the bank to ensure its continued capacity to do its business. That can be assessed on a day-to-day basis. It isn't possible to assess the precise figure," he said.
The €1.5bn figure had been chosen to inspire market confidence: "There is no need to do that in the context of a nationalised institution because it is under total State ownership."
The final value of the bank will be decided by a State-appointed assessor – and not by its final closing on stock exchanges.
"An assessor will determine what the value of the bank is for the purposes of compensation of any particular shareholding.
"I am not in a position to make that assessment this evening. It would be improper of me to make that. The market attached a particular valuation. Of course, the market valuation is not conclusive. A separate investigation will have to be made by the assessor."
The advice from Attorney General Paul Gallagher is that the "bank might be worth less than that, or more than that. Therefore an assessment has to take place.
"The market valuation is only an estimation made by the market at a particular time. We know how stressed the markets are.
"Regard will be had to a wide range of factors including the liquidity of the bank; the future of the bank, the assets, the liabilities. All those will be taken into account by the assessor.
Anglo Irish has debts of €100bn, but deposits of €80bn: "Those depositors have to be paid on request and interest has to be paid as undertaken. That's the fundamental issue with Anglo."
Some deposits had been removed in recent weeks, and months, said Mr Lenihan, but he refused to divulge more: "I am not prepared to disclose about cash balances of an institution which will now trade
with the protection of the State. I am not prepared to answer that question.
"The funding position of the bank did weaken as a result of the disclosure of the improper and unacceptable practices carried on by the chairman. There was some stabilisation with the assumption of
control by a new chairman, Donal O'Connor".
Thanking Mr O'Connor for his efforts, Mr Lenihan said he had worked "night and day with the exception of Christmas Day to safeguard the position of this bank and do all in his power to protect its interest. But
despite that very valiant effort and tremendous work on the part of the staff the fact remains that the bank remains in a fragile position. It is a solvent bank. It has cash in hand, but the requirements of stability in our financial position requires that the Government takes this final step."
Some executives have already quit the company, and the position of others depends on their knowledge of former chairman, Sean Fitzpatrick's loan dealings.
"That issues turns on whether they have any complicity in events that you are all well aware of," the Minister told an 8pm press conference.
The bank's extraordinary general meeting, to be held tomorrow, will go ahead as planned, but the letter of offer by the State to take up €1.5bn has been rescinded
Asked why the decision was taking place just hours before the EGM, he said: "We had a very detailed opportunity to evaluate the bank since the letter of offer by the State. We were able to monitor every
development in the bank in the last few weeks with the full co-operation of DOC and his staff. That enabled the State to make a far more precise judgement on the part of the regulator, the Central Bank and ourselves on what was in the best interests of the Irish State."
The recapitalisation offer had been "the last step short of nationalisation. The judgement we took on the balance of the argument is that it was better to take the bank into State ownership. I do want to stress that that was the balance of the argument. There was a balance in the argument."
He dismissed speculation in Dublin throughout today that there had been some dispute between himself and the bank's board about the appointment of a new chief executive.
"There was no dispute about the appointment of a CEO. That did not arise. I want to scotch that, and I am glad to have the opportunity to do so," he said.
He rejected the argument that the Government was acting because a flight of deposits had occurred: "There was no run on this bank in recent weeks. It weakened but there was no systematic outflow of funds. I think we all know what a run involves. That didn't happen."
He went on: "Nationalisation makes it clear that the State stands behind the bank in every respect. The experience in every state indicates that nationalisation increases the rating of a financial institution. We saw that with Northern Rock in the UK
He angrily rejected a question which implied that the Government had by its actions guaranteed the investments made in Anglo by Ireland's wealthiest businessman, Sean Quinn.
"We are not guaranteeing Sean Quinn, and I really think that is an unacceptable way to formulate the question. The position is that Sean Quinn may owe this bank some money. It is the duty of the bank that any monies owed by him are paid."
Questioned about how the bank will be valued finally, he said: "If the assessor decides that the bank is worthless, then the compensation paid is nil. If the assessor decides that this was a very valuable institution, notwithstanding market sentiment, then, of course, any shareholder is entitled to some compensation."
Refusing to speculate on the final figure, he said: "The market capitalisation is very low. And there are those who have argued that the market capitalisation, though low, is excessive."
He went on: "If as many have suggested in public print in recent weeks – to no advantage to the Irish State, I have to say – that this particular institution is worthless then, if that is the case, nil compensation will be paid. That is the assurance I can give the taxpayer."
Asked about Anglo's bad debts, he said: "There are considerable bad debts in all of the Irish institutions. Our examination to date has confirmed in broad terms the analysis that we had already received."
Questioned about the implications for Ireland's credit rating from the move, he said: "The credit rating of every country is under question. Credit rating agencies are questioning the rating of many countries, even in the EU.
"I think you can argue that the State through recapitalisation and renationalisation of Anglo has ensured that whatever risks are associated with our credit rating are reduced through more precise identification of where those risks lie."
Criticising Fine Gael, the main opposition party, he said: "I would have a very specific concern that the statement issued by Fine Gael last evening that the bank should be in some sense be liquidated. The
clear priority for us is to collect the debts and not to encourage debtors in an attitude that they don't have to pay their debts because in some sense the bank is being wound up. That is why that I am making it very clear that this bank is going to be run on proper commercial lines and loans have to be collected."
He went on: "We can't afford the risk of any default on the honouring of our deposits. That is fundamental to the economic welfare of this State."
Asked if the bank's debts could now be written down aggressively, he said: "That is a matter of commercial judgement for a financial institution. The Government is going to conduct itself at arms length from commercial decisions. It is for a bank to enforce loans and to collect loans in a way in which they believe is appropriate and timely."
But Anglo will lend: "The bank is open for business, but clearly the board that I will formulate will have to decide on a business plan, a realistic business plan for my approval. We are not being panicked into any decision here. The decision was made by the Government this afternoon after a great deal of
consideration."
The original recapitalisation decision had been worth trying, he argued: "I believed it was worth trying to stave off nationalisation but it has not resulted in the degree of confidence and certainty in relation to the position of the bank that would justify not nationalising.
"The reality for any state is that you have to stand behind your deposits. We have seen states in Europe: Iceland, Hungary and Latvia where states have not honoured deposits and the catastrophic consequences for them for failing to do so.
"The guarantee which the State gave has already been priced into the value of our external credit rating. You can argue, if anything, that nationalisation reduces the scope of this under the guarantee.
"I have made it very clear to you that I don't envisage this decision of itself having any impact on credit rating because the earlier guaranteed was factored.
"The most important way of improving our credit rating is to take firm and decisive action in regard to our public finances." Ireland's two biggest banks, Allied Irish Banks and Bank of Ireland, are "sound, liquid and will be well capitalised at the conclusion of the capitalisation exercise."
Shareholders who owe money to the bank will not get any compensation due to them for the nationalisation – assuming, that is, that the assessor decides that any compensation is due – if they owe money to it.