The final cost of the Government’s plan to split Anglo Irish Bank into two entities and wind them down or sell them will be known within weeks, Minister for Finance Brian Lenihan said this morning.
Yesterday, the Government decided to divide the State-owned lender into a new “funding bank” or savings bank that 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.
Mr Lenihan said the plan was not a silver bullet but said that it would provide clarity to the market within weeks. He said Ireland won't need access to the European bailout fund to fund the split.
"We are all working together to ensure that definite figures will be produced before the beginning of October," he said.
In an interview on Newstalk, Mr Lenihan said the savings unit would not engage in any anti-competitive practices.
"One of the problems with Anglo Irish and [Irish] Nationwide in the past was that they offered to customers and international depositors in the case of Anglo interest rates that were far too high," he said, adding that the details would be worked out in time.
Asked about the capital requirements of Bank of Ireland and AIB, Mr Lenihan said the former had successfully raised private capital. AIB was seeking to raise private capital and if the lender required additional capitalisation from the State, this would be provided from existing cash reserves and would not result in additional borrowing, he said.
Anglo’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.
The Government yesterday claimed that its proposals would cost the taxpayer less than those proposed by Anglo’s management.
Speaking on Newstalk this morning, chairman Alan Dukes said elements of the board's plan had been incorporated into the Government's proposals. "The scheme is broadly similar - an asset recovery bank which will work out the assets that the bank has, and a smaller funding bank, which exists to make funding available for the recovery bank," he said. "They are legally separate operations and they do different things."
Mr Dukes said he was anxious to move forward.
"I think this is a very complex area in securing a recovery of the banking system, I don't think there is one single right answer that we can ever pretend is there. This was a view that the European Commission and indeed the Government here have taken," he said. "I wouldn't say [our advice] was ignored; I think parts of it were found not to be congenial to the people who would be putting up the money for it."
Labour Party leader Eamon Gilmore said today Government's solution to the Anglo crisis was a "rushed decision" which only added to the confusion.
"We came into where there were two approaches to dealing with Anglo. The Government appears to have some kind of a compromise between those two approaches," he said in Limerick. "We don't know yet what the cost of it will be and meanwhile, there are continuing confused signals to both the Irish public and to the international money markets."
He said Labour had long been in favour of an orderly wind down of the bank, as this would be less expensive for the taxpayer.
The initial response of the markets appeared positive but a more considered view will be given today. Yields on 10-year Irish bonds were largely unmoved by the Anglo plan and closed at 5.887 per cent. The spread between Irish bonds and the German bund closed at 352 basis points.
“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.
The Government has 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 yesterday.
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 guaranteed position of depositors would remain the same as a result of the Government’s decision.
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.
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.