Anglo rows back on its 'risky' plan for direct takeover of Quinn
Anglo Irish Bank has finally abandoned the idea of directly taking over Quinn Insurance after it accepted some of the concerns raised by the Financial Regulator.
Instead, the nationalised bank is looking at four alternative options, including forming a venture company with another firm to take over the insurer.
The bank's directors have decided that a direct takeover of Quinn Insurance would leave the bank with a highly risky consolidated balance sheet, including all the liabilities of Quinn, which has about €1bn of outstanding claims.
The bank's board has been considering ways around the regulator's concerns for weeks, but it decided in the last few days that a straightforward takeover was now completely off the table.
While the bank is still keen to recover the €2.8bn owed by the Quinn family, Anglo has no experience of running an insurance business, which triggered "prudential concerns" on behalf of the regulator. Anglo is already facing questions over how its so-called "good bank/ bad bank" plan would work and how much risk it would pose for the Government, the ultimate shareholder.
A direct takeover of Quinn is seen as something that would complicate this plan further. However, it is believed contact has been made with American and Dutch insurers over the joint venture firm.
If Quinn Insurance returns to profitability, Anglo Irish would hope to recoup some of the €2.8bn, but as an equity partner.
However, with Quinn losing money in 2009, and possibly in 2010, it could take years before profits and dividends from such an arrangement would eat into the amounts owed by the family. The other complicating factor remains the guarantees given by subsidiaries of Quinn Insurance on the group's debts.
These guarantees have been given to lenders to the Quinn Group and have to be bought out as part of the Anglo plans.
Meanwhile, plans to sell Quinn Insurance to an industry buyer are progressing, with a sales memo expected shortly. After this, a data room for buyers is expected to be set up by Macquarie Capital Europe, which is handling the sale.
The hurdles to an Anglo deal on Quinn are very significant -- agreement from the Financial Regulator and the Department of Finance will be needed before any deal could go ahead, for instance.
Any new entrant to the Irish market that teams up with Anglo will also have to become a "regulated entity" and this could take significant time.