Taoiseach Brian Cowen said Government had taken a “strategic decision” to split Anglo Irish Bank into a Funding Bank and an Asset Recovery Bank.
Mr Cowen said he hoped the final cost of the plan could be revealed with “the maximum certainty we can” by October, adding that the Coalition was anxious to bring finality to the matter.
“The big decision today is that we have decided on how this bank is going to go forward by the deposit bank and also the asset recovery bank. We’ve made that strategic decision.”
Assets would be "worked out over the optimum period" in order to get the best possible return for the taxpayer, he told RTÉ's Six-One News this evening.
A spokesman for the Green Party in Government expressed satisfaction with the strategy because he said it did not endorse the proposal favoured by Anglo Irish Bank management.
“In recent times the Green Party expressed concerns that actions needed to be set in train on this issue sooner rather than later.
We’re satisfied this is being done. We’re satisfied that the strategy does not endorse the Anglo plan leading to the emergence of…a potential new banking force because we did not see that as a viable option at all.”
He said Anglo’s problems were “weighing very heavily on the Irish taxpayer” and the announcement would lead to them being resolved sooner rather than later.
Fine Gael’s spokesman on finance Michael Noonan said he wanted the plan to work but expressed concern that there were no figures in the statement from Minister for Finance Brian Lenihan.
Mr Noonan said he did not think the new plan would be sanctioned by the European Commission until 2011. “We’re within a week of the second anniversary of the Lehman’s collapse. Other banks have gone down all over the world and they have been rescued. They’ve been recapitalised, they’re functioning again.”
He pointed out some American banks were paying back money the US administration had given them. “In Ireland we’re still talking about it two years later.”
The Labour Party’s spokeswoman on finance Joan Burton insisted Mr Lenihan’s statement was “cobbled together” and had failed to clarify his intentions.
“Having spent two years insisting that Anglo must continue in its present form, the Government has finally abandoned their failed policy. Yet, even as they U-turn, the announcement has left a whole series of questions unanswered about the future of Anglo, at a time when the markets urgently require clarity from the Irish Government.”
Anglo Irish chairman Alan Dukes said the Government and the Commission had rejected the bank’s own ‘good bank, bad bank’ plan because it had decided it did not want to see Anglo continuing to lend.
Mr Dukes added that it was “a pity" that is the route they are taking.
"The Commission and the Government, I think have particular reasons for taking that view and I have to respect that. There is a feeling that the Anglo franchise, so to speak, is a problem in the market, and that they would wish not to have that franchise active in the market causing a problem.”
He said another reason why the Commission had rejected the bank’s own proposal was due to some concerns of the longer term consequences around State aid and the requirement for ongoing funding requirements.
Sebastian Orsi, an analyst at Dublin-based Merrion Capital, said the move provided “no greater certainty over the potential liability the State faces” due to the capital deficit at Anglo Irish.
"A State-owned deposit bank competitor for remaining market participants could distort competition; the EU might want measures implemented to reduce this risk," he added.
Credit-default swaps on Anglo Irish surged 79.5 basis points to 795.5 today, according to data provider CMA, the highest since March 2009. The contracts imply a 50 per cent probability of default within five years, CMA data show.
The premium investors charge to hold Irish 10-year debt over the German equivalent, Europe's benchmark, has risen to a record in the past month.
The spread narrowed to 370 basis points today from 373 yesterday, still almost nine times its average over the last decade.
