Business Irish

Wednesday 16 August 2017

Anglo runs high risk of default in next five years

Hundreds of millions withdrawn ahead of split

DISCOVERY: Roisin Shortall. Photo: Steve Humphries
DISCOVERY: Roisin Shortall. Photo: Steve Humphries

SHANE ROSS and Nick Webb

ANGLO Irish Bank has a 50 per cent chance of defaulting on its debt over the next five years, according to financial analysis firm CMA.

The cost of insuring Anglo Irish Bank's debt soared last week, with credit default swaps — a barometer of risk — hitting 799 points at one point on Wednesday. This indicates the likelihood of default by 2015 is as high as 50 per cent.

Despite the government plans to split the bank, credit defaults swaps remained close to that level as markets closed last Friday.

Last week Finance Minister Brian Lenihan dismissed suggestions that Anglo would renege on its debt. “I do not see default on that kind of bond as a realistic option for the Irish State,” he said, adding that it would be “very dangerous for the country”.

Anglo's riskier borrowings — known as subordinated debt — are an even shakier proposition, with swaps trading indicating that the chance of a default could be as high as 72 per cent over five years.

Anglo has indicated that it would seek to buy back some of this debt at a reduced rate. “The recovery for subordinated bond holders [a type of debt] is bound to be limited,” ING Bank analysts warned last week.”

The Government's proposals to split Anglo into a savings bank and an asset recovery bank and to wind down its loan book are being closely scrutinised in Europe. It is understood that the high rates of interest being paid by Anglo to its corporate and retail depositors will come under threat.

The savings rates — among the highest in the market — may fall foul of EU competition czars. This is bad news for savers as Anglo's rates have forced the other high-street banks to pay artificially high interest on deposit accounts.

It is understood that hundreds of millions of euro in retail savings were rushed out of Anglo deposits in the days leading up to last week's announcement that the bank was to be split into a funding bank and an asset recovery bank . The outflow is believed to have been serious enough to prompt the Government to make the early statement on the future of the bank in order to stem the flow of funds out of the country.

Initial indications were that the outflow had been stemmed after depositors were reassured by the separation of their savings into a single entity covered by the bank guarantee.

Meanwhile, Labour TD Roisin Shortall has been told by Anglo chiefs that they are paying a net €30,000 a week (€1.5m a year) for their new premises in Dublin's Burlington Road. A few months ago top Anglo executives moved out of their St Stephen's Green HQ to downsize into the Burlington Road premises.

Ms Shortall told the Sunday Independent that she was surprised to learn of the high rent , particularly as the bank had taken a 25-year lease on the offices in Dublin's upmarket suburb.

The 25 years is optimistic as the Anglo wind-down is not expected to take more than a maximum of 15 years, according to the new plan.

Sources at Anglo refused to estimate the amount of money that the bank had spent on the abandoned plan for the bank's future but it is certain to have cost several million. Nor would they say how many outside consultants were being employed by the bank or the cost to the taxpayer.

On Friday evening, chief executive Mike Aynsley told the Sunday Independent that he was “a little disappointed that the plan was not accepted, as you might expect”.

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