BANK PLAN:THE GOVERNMENT has decided to wind down Anglo Irish Bank while seeking to secure its €54 billion in deposits.
Minister for Finance Brian Lenihan said the Government has an estimated cost for its plan but did not disclose it.
The Government had decided against the good bank/bad bank option which had been favoured by the management of Anglo Irish Bank. “We do not believe that the creation of a new bank out of the wreckage of Anglo that will require additional capitalisation will necessarily result in any substantial additional benefit to the taxpayer,” Mr Lenihan said.
The alternative plan unveiled yesterday means Anglo will not be involved in new lending. This in turn will mean a lower level of fresh capital will be required.
The Government has decided that Anglo should be broken into two banks, a funding bank or savings bank, and an asset-recovery bank. The Anglo name will disappear and the new banks will be rebranded.
“The guaranteed position of depositors will be unchanged by the new arrangements and no action is required of them,” said Mr Lenihan.
The length of time taken to wind down the asset-recovery bank would depend on what was in the best interests of the exchequer.
Mr Lenihan said Financial Regulator Matthew Elderfield will decide how much capital the two new banks will need. That decision is expected by October and will give “as much certainty as is possible” about the final cost of dealing with Anglo.
The senior and subordinated bonds that are held by Anglo will go to the asset-recovery bank. Mr Lenihan said the State is not going to default on Anglo’s senior bonds because of the threat that would pose to the State itself.
Commentary about defaulting on Anglo’s debts was “very dangerous” as it caused people abroad to think the Government might be giving consideration to such a move, which it was not.
On the bank’s €2 billion-plus in subordinated debt, Mr Lenihan said it would be open to the new bank to seek to reduce it in value once it came out from under any guarantees. The bank has in the past conducted buy-backs of subordinated debt at discounted prices.
The details of the legal relationship between the two proposed banks has yet to be established. It is envisaged that the savings bank will buy bonds that will be issued by the asset-recovery bank.
Mr Lenihan said the discussions with the European Commission had led to it “coming to the same conclusions as ourselves” about what should happen with Anglo. The EU’s state-aid rules were not a decisive factor.
The Government’s decision, Mr Lenihan said, “puts certainty and finality over the whole Anglo story”. When the regulator gives his view on the levels of capital required by the two new banks “we will have absolute certainty”.
He said the interest rates Ireland is being charged on the international bond markets had not “bounced” the Government into making its decision but it had caused it to bring forward its announcement of the decision.
He said the asset-recovery bank, if well run and well managed, could achieve a return for the State.
He said Irish banks will be able to refund themselves. “There will be no cliff at the end of the month.” As this became clearer it will in itself reassure the markets, he said.
He said the concerns of the markets were to do with the banking sector and not Ireland’s public finances.
It is understood the department feared that depositors might have been prompted to move their funds from Anglo if there was a straightforward wind-down.
However, with the Government’s plan it is hoped more depositors will leave their money where it is, as the deposits will be in a Government-owned bank. The savings will be “insulated” from risks associated with Anglo’s loan book, Mr Lenihan said.
