EUROPEAN COMMISSION:THE EUROPEAN Commission has initiated an in-depth inquiry into the State's support for Anglo Irish Bank, a process in which it will scrutinise Government figures that indicate the cost of winding the bank down exceeds the cost of injecting billions of euro in fresh capital.
Hours after Minister for Finance Brian Lenihan said he had given an additional €8.3 billion to Anglo, the EU executive said it temporarily approved the transaction.
Saying the price at which the National Asset Management Agency (Nama) is acquiring its first tranche of loans from Anglo was “slightly less” than expected, the commission also approved a further injection of up to €2.14 billion into the nationalised lender. This follows the commission’s approval last year of a €4 billion State recapitalisation of Anglo.
Although Mr Lenihan said Anglo may in fact need another €10 billion post-Nama, a spokesman for the commission’s competition division said it had not yet been notified of that sum.
The commission also temporarily approved a €2.7 billion injection into the Irish Nationwide Building Society (INBS).
“There is no doubt that both Anglo Irish Bank and INBS need a significant recapitalisation to meet their obligations. The measures are also necessary to preserve financial stability in Ireland,” said competition commission Joaquin Almunia.
“However, INBS needs to establish a viable restructuring plan and Anglo Irish Bank has to restructure profoundly in a way that effectively tackles the weaknesses of the past business model and ensures a sustainable future without continued State support.”
The commission said the €8.3 billion for Anglo was required to enable the institution to close its 2009 accounts. This capital injection is valid until June 22nd, six months after Mr Lenihan gave a firm indication to Anglo of his intention to provide further aid to the bank.
While Anglo will be required to submit a new restructuring plan as part of the investigation, the opening of this process means interested third parties now have the possibility of commenting on the measures in question.
The commission’s first priority in the investigation is to confirm Anglo’s viability as a going concern. This process is designed to assess whether it would be possible to close the bank at a lower cost to providing it with new State capital. It is in this context that officials will examine Mr Lenihan’s projections as to the cost of each option.
Officials will also examine the adequacy of the burden-sharing arrangements between the State and debt-holders.
While the commission can ban the payment of interest to subordinated debt-holders, it has never before ordered a deep discount on the principal amount due to subordinated holders of a distressed bank’s bonds. The concern in assessing the merit of such an action would be to avoid a bond default that could lead to a call on the Government bank guarantee, triggering contagion among holders of Irish bank paper.
