THE GOVERNMENT has unveiled plans to split Anglo Irish Bank into two entities and wind them down or sell them. However, it has not disclosed the amount of funding or time periods the move will involve.
The bank’s future has been weighing heavily on international market sentiment towards Ireland and in recent days there has been growing pressure on the Government to state its intentions.
Under the plan, revealed by Minister for Finance Brian Lenihan yesterday, a new “funding bank” or savings bank will take over Anglo’s deposits, while a new “asset recovery bank” will take over €38 billion in loans that are not being transferred to the National Asset Management Agency (Nama). Neither will trade under the Anglo name.
The Government claimed that its proposals would cost the taxpayer less than those proposed by Anglo’s management.
The initial response of the markets appeared positive but a more considered view will be given today.
“The final bill for Anglo can’t be known yet, so the financial markets will still have some concerns,” said analyst Sebastian Orsi of Merrion Capital.
Labour Party spokeswoman on finance Joan Burton insisted Mr Lenihan’s statement was “cobbled together” and had failed to clarify his intentions.
“Having spent two years insisting that Anglo must continue in its present form, the Government has finally abandoned their failed policy.
“Yet, even as they make a U-turn, the announcement has left a whole series of questions unanswered about the future of Anglo, at a time when the markets urgently require clarity from the Irish Government.”
The Government decided against Anglo management’s preferred “good bank/bad bank” option and has instead decided to wind down the bank, while seeking to protect the €54 billion it has in deposits and other funding.
The asset recovery bank will also take with it the senior and subordinated debt – this is the funding provided by investors – that is held by Anglo. The recovery bank will be run down over a period that maximises the return to the exchequer, Mr Lenihan told journalists.
He did not give a specific timeframe for this process but said: “It is very difficult to see an asset management company going beyond 15 years for example, very difficult, and it could be a shorter period.”
Mr Lenihan said the Government had estimates for the various options available to it. He said Financial Regulator Matthew Elderfield will now have to decide what the capital requirements of the two new banks will be. This should occur by October, the Minister said.
Anglo chairman Alan Dukes said it was “a pity” that the Government had decided to reject the bank’s own plan but that it was “the shareholder’s prerogative”.
The good bank plan, which earlier this year appeared to have the backing of Mr Lenihan’s department, would have involved a capital injection of €2.5 billion. The capital required under the new plan, approved by Cabinet yesterday, is expected to be considerably less because the new banks will not be engaging in new lending.
Mr Lenihan said when Mr Elderfield gave his views on the capital requirements of the new banks, this would provide as much certainty as was possible about the cost of dealing with Anglo and would “underpin financial confidence in Ireland”.
He said the level of interest that was being charged for Irish debt on the bond markets was troubling to the Government and had prompted it to bring forward the announcement of its decision on what to do with Anglo.
Mr Lenihan said the guaranteed position of depositors would remain the same as a result of the Government’s decision.
The Government’s hope is that, by establishing a State-backed savings bank, it can wind down Anglo loans while holding on to as many of the deposits as possible.
Mr Lenihan said his department had looked at the Anglo management’s plan for a good bank but decided “that that wasn’t a viable option in the current climate”.
He said the European Commission’s views on State aid were not a decisive factor in the final decision arrived at by the Government.
“Resolution of this, our most distressed financial institution, is essential to the promotion of confidence and stability in our financial system,” Mr Lenihan said.
Fine Gael spokesman on finance Michael Noonan said he wanted the plan to work but expressed concern that there were no figures in the statement from Mr Lenihan and that the decision on what to do had taken so long.