Business Irish

Wednesday 28 June 2017

Taxpayer faces bill of €30bn in early Anglo wind-up

Ex-Anglo Irish Bank chairman Sean FitzPatrick
Ex-Anglo Irish Bank chairman Sean FitzPatrick

Joe Brennan

Taxpayers would be left footing a bill of about €20bn to €30bn if Anglo Irish Bank were wound down over five to 10 years, according to sources familiar with the costing of various options for the bank.

Anglo's new management's preferred option of splitting the group into a "good bank" and "bad bank" would require a further €4bn to €6bn capital injection, sources said.

Anglo is seeking to salvage a viable bank from the process, capable of repaying the State over time.

The Government has already pumped €4bn into Anglo, after €4.1bn of bad loan losses for the six months to last March virtually wiped out its equity reserves.

The new capital would bring total support up to €10bn.

Consultants KPMG and a host of major international investment banks were involved in costing options before the "viability plan" was submitted to the European Commission at the end of November.

With today marking the anniversary of the Government's snap decision to nationalise the bank, Anglo's restructuring plan is entirely in the gift of Brussels, which must ascertain whether it has a chance of succeeding.

Fine Gael leader Enda Kenny said last weekend that if his party took power, it would wind Anglo up over a period of seven to 10 years. He said he could save the taxpayer about €3bn in the process.

Critics of the plan have said there is no prospect of Anglo becoming a viable lender again. However, Anglo's new chief executive, Australian Mike Aynsley, who has taken a tough line on directors' loans, is understood to have said privately that a short- to medium-term wind-down of the whole group "would lead to an incineration of taxpayers' money".

Sources briefed on the costing scenarios say a wind-down over five to 10 years would set the Exchequer back up to €30bn, between capital injections and soaring funding costs, driven by:



  • Forced asset sales leading to further losses and capital requirements.
  • Foreign investors hiking interest demands, or pulling funding entirely.
  • Depositors needing on-going guarantees to keep them on board.


Still, the worst-case-scenario cost is only half the €60bn-plus bill the Government claimed last May that taxpayers would be left footing if Anglo were liquidated.

The restructuring plan being examined by the EU seeks to demonstrate how a profitable "good bank" -- lending to small business, infrastructure projects and property, albeit at much lower valuations -- would be able to start paying back the State over time.

Holders of Anglo's riskier -- or sub-ordinated -- bonds would be forced to absorb a large part of the losses in the 'bad bank'.

Problem

Nevertheless, Anglo faces a tough task demonstrating that it can repay taxpayers' money after five years, as necessitated by EU state aid rules.

But supporters of the plan argue the State needs a prudently-run commercial property lender to fund transactions that would come as the National Assest Management Agency (NAMA) looks to dispose of assets over time.

"It's an unfortunate reality, but NAMA and the broader property market face a huge problem if nobody is willing to fund the purchase of property (that the agency) will be seeking to sell," said one source.

It is understood the plan envisages the Government selling a totally rebranded "good Anglo" in five years, in the hope of further clawing back the billions it has pumped into it.

A good bank/bad bank split would see most of the group's remaining €44bn loan book after the NAMA process being piled into an "asset management company", which would be required to hold much lower capital ratios than the regulated "good bank" arm.

The sub-ordinated bonds would be lumped into this asset run-down company and are likely to face losses in any final settlement arrangement.

This would lower the additional capital requirements from the State.

Irish Independent

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