IRISH NATIONWIDE'S ROLE:JUST EIGHT days before the Government put in place its bank guarantee scheme in 2008, the former chairman of Irish Nationwide (INBS) Michael Walsh told the Department of Finance that Anglo Irish Bank was "best positioned" to manage the building society's developer loan book.
This emerged yesterday as documents relating to the decision to implement a bank guarantee scheme on September 30th, 2008, were released by the Public Accounts Committee.
Mr Walsh’s comment was made as part of a document sent on September 22nd, 2008, to David Doyle, the former secretary general of the department, outlining four possible options for the future of INBS to survive the global financial crisis.
Mr Walsh said the “do nothing option will inevitably result in the collapse of INBS”, which he said would have implications for its 180,000 depositors and result in a “distress sale of the loan book”.
He said INBS was unlikely to have sufficient funding to “get the time to have an orderly run-off”. Mr Walsh said a move to break up INBS would be “difficult” as it would not be possible to do it on an “overnight basis”.
Mr Walsh’s six-page memo goes into detail about a possible merger with Anglo, which the former INBS chairman said was the only institution that indicated a willingness to consider a solution with the society.
“It [Anglo] understands the relevant markets in great details and it has the experience of working with people in more challenging times,” the document states.
He added that a solution focused on Anglo would avoid “further concentration” in the banking market and “there would be no branch closures as a result”.
Mr Walsh said Anglo had indicated to the society that it would have to be seen as the State’s “preferred solution provider” in any takeover.
“Anglo must be seen to be insulated from any downside that may exist in the developer book,” he added. “Anglo would have to be protected against any severe outflow of funds following an acquisition.”
Mr Walsh said the acquisition would have to be effected through a “bankruptcy remote SPV ”, which would not be consolidated with Anglo for capital purposes.
The Government would have to underwrite the SPV as to any deficit in net assets and funding and liquidity support provided with funding secured on the SPV asset.
Mr Walsh detailed five potential risks to a deal with Anglo in his correspondence with Mr Doyle.
“Merging INBS into any bank will be publicly seen as a bailout,” he said.
“This can only be counteracted by very significant support for the entity into which INBS is merged.”
Mr Walsh said a merger with Anglo could compound the risks for the State, given the property focus of the banks.
He said the State would have to guarantee Anglo at the same time and it may not be sufficient to guarantee the liquidity and assets of the SPV.
Mr Walsh also said other institutions might oppose such a move as a “sweetheart deal”.
“There is a real danger that the market will not accept this as a solution unless there is an unequivocal statement from the state that it will provide whatever support is necessary to Anglo,” he said in conclusion.
