Sunday 28 May 2017

Anglo's plan failed because of its previous dismal record

Key players baulked at idea of further lending

Mike Aynsley,Chief Executive of Anglo Irish Bank, Alan Dukes, Chairman and Maarten Van Eden, Chief Financial Officer
Mike Aynsley,Chief Executive of Anglo Irish Bank, Alan Dukes, Chairman and Maarten Van Eden, Chief Financial Officer

Emmet Oliver Deputy Business Editor

The previous lending record of Anglo Irish Bank was the key reason the Government and the EU Commission shot down the 'good bank/bad bank' model proposed by the bank's senior management.

Sources familiar with the talks involving the EU, the Department of Finance, the Central Bank, Anglo and the NTMA told the Irish Independent that staff previously associated with lending decisions at the bank could have taken key roles in the new bank and this made key players nervous.

The good bank/bad bank idea would have involved putting between €2bn and €3bn of fresh capital into a new bank and this would have been lent into new sectors by the bank's existing staff. Property would have been a large part of the lending.

At several meetings, government representatives expressed concern about the past record of staff members, although they expressed satisfaction with the recent work done by the Mike Aynsley-led management team.

Baulked

Government representatives are believed to have baulked at the idea of Anglo lending such large sums into segments of the market previously ignored by the bank.

The EU Commission retained its opposition to this idea right to very end. Instead, the bank will be split in two -- a savings bank and an asset recovery bank -- and both will have to be capitalised with funds decided by the Financial Regulator Matthew Elderfield.

Yesterday, chairman of Anglo Alan Dukes admitted there was no certainty the capital required for the two new banks plus funds already committed would not exceed €25bn.

The two banks will be separate, but the savings bank will end up funding the recovery bank. This will be done by a bond that could be as big as €45bn. A source described the arrangement as like one bank branch lending to another. The new savings bank will be able to gather deposits from a range of markets including European countries and the Isle of Man.

This savings bank is unlikely to need much capital, but the recovery bank will need a lot of regulatory capital, with some sources suggesting it may need 10pc of assets in equity capital to cover for the inherently risky nature of the loans.

The new Anglo Irish recovery bank, which will take €38bn of loans, is getting a banking licence to prevent loans being added to the budget deficit, the Irish Independent has learned.

Under the original good bank/bad bank idea proposed by Anglo's management, the entity taking the loans was not going to be a bank, but a simple commercial company, without a banking licence.

But this could have meant the company's loans would have been added to the general government balance (GGB), the European version of the annual budget deficit.

Irish Independent

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