The taxpayer faced exposure of up to €64 billion if the State failed to inject funds into Anglo Irish Bank, Taoiseach Brian Cowen has told the Dáil.
Mr Cowen faced criticism from the Opposition during leaders’ questions on the State’s decision to put €4 billion into the now nationalised bank in order to allow it restructure and to shore up its capital position.
The Taoiseach said Anglo was of “systemic” importance to the financial system of the State and that the decision to refinance it was necessary in order to allow the bank to restructure, to releverage, to reduce its costs internally and to ensure the taxpayers’ exposure was minimised. The decision to nationalise was a “last resort”, he told the house.
“Alternative approaches would greatly increase the exposure to the taxpayer in that respect.”
The bank’s accounts for six months to the end of March showed a pre-tax loss of €4 billion, mainly due to a write-off of some of the loan book, Mr Cowen said.
He said it was a “question of jobs being saved” and that it was important to maintain the 1.8 million jobs in the country.
Fine Gael leader Enda Kenny and Labour Party leader Eamon Gilmore questioned the Taoiseach on the decision today.
Mr Kenny asked how much in lending would now be made available to businesses as a result of the injection of €4 billion into Anglo and how many jobs would be saved.
Mr Kenny said no jobs would be saved as a result of the Government’s move.
“This is a situation that is rotten to the core and you propose to put in €4 billion for which taxpayers in this country will pay some sort of levies or some sort of charges to keep this alive.”
Mr Kenny said Minister for Finance Brian Lenihan had told the house last September that there was no “run” on Anglo Irish Bank, whereby customers were withdrawing deposits.
“We now know that there was a serious run on Anglo Irish. You told us there were no capital shortages in Anglo Irish Bank. We now know that there were serious capital shortages in Anglo Irish Bank.
“We also know that there are persons there, unnamed, who have loans of €30 million apiece. We also know that there are serious irregularities in the way business was run here."
Mr Kenny accused the Taoiseach of failing to answer the questions put to him.
The Taoiseach said the priority in relation to Anglo Irish bank was that it "gets recovery to the greatest extent possible of the loans that it has out" and that, as a nationalised bank, it was supported in that effort.
Labour Party leader Eamon Gilmore asked how much money had been loaned by the bank to its own senior staff, how many staff members were involved, what the loans were extended for and whether they were still in place.
He claimed Anglo had not lent “a cent” to anyone other than its existing clients since last September.
“This is a bank, which frankly, is a financial cesspit,” he said.
“We’ve already heard about the extent to which this bank gave loans to its own directors, gave loans to other people to buy shares in the same bank, arranged back-to-back loans with another financial institution to make its financial position look healthy at a time when it was anything but."
He asked what was the Government’s “bottom line” for Anglo Irish Bank and said some commentators were suggesting it would cost much more than €4 billion. He asked if it would become a “bottomless pit” for the taxpayer.
“How deep is the hole for the taxpayer going to be for this bank?”
He said the day the Government made the decision to put €4 billion into Anglo was the same day that every monthly paid employee had their paypacket “raided” to pay new levies to pay fo the "financial mess that the country is in now".
Mr Cowen told the house that €31 million of the total €4.3 billion impairment charge on the accounts related to loans to directors. He said there would be no write-offs and that the bank would seek “full repayment”. He did not give details of how many senior staff had loans from the bank.
“We hold no brief for any bad governance of this bank," he said.
“The suggestion here is that there was €4 billion available [to go] into a bank that could have gone everywhere else. And the suggestion is we just decided to support a bank instead of supporting public services. The question here is that you have to support the financial system in this situation, because the alternative of winding up the bank…would expose the taxpayer to a far greater liability. Because the level of deposits in the bank are up to €64 billion – that’s why.”
He said that if the Opposition was suggesting the Government should “let everyone swing, let the bank go” that this would be leaving the taxpayer open to exposure of “up to €60 billion”.
"And we couldn’t contemplate that because that would all crystallise on the basis of such a decision."
Currently, the bank’s balance sheet has more than €64 billion in deposits from other banks and from customers, of which some €14 billion is Central Bank funds.
Anglo Irish Bank chairman Donal O'Connor yesterday told an Oireachtas committee the board had considered an "orderly wind-down".
But it later concluded that this would lead to a significant withdrawal from funding of €50 billion, leaving the taxpayer with a large bill.