What the sale of Anglo's deposit book will mean for you
The Government went to the High Court yesterday to seek permission to auction off the deposits of bust banks Anglo Irish and Irish Nationwide. George Garvey examines what this means for depositors and taxpayers.
Q: Why is the Government auctioning off the Anglo and Irish Nationwide deposits now?
A: Unfortunately we don't know the full reason why the Government moved yesterday, as the publication of certain financial information about both Anglo and Irish Nationwide was banned by the High Court on the grounds that it is "commercially sensitive".
What we do know is that flogging off the deposits of Anglo and Irish Nationwide is the first step in a process which will lead to the merger and eventual closure of Ireland's two most bust banks, something which both the EU and the IMF have insisted upon under the terms of last November's bailout.
Anglo still has €11bn of deposits and Irish Nationwide another €4bn.
Q: What does this mean for Anglo and Nationwide depositors?
A: A cynic could be forgiven for wondering if the depositors who -- after all that has happened -- still have their money with either Anglo or Nationwide possess a very high tolerance of risk.
However, it is clear that there has been a flight of deposits from Anglo over the past year with its deposits falling from €27bn at the end of 2009 to just €11bn at the end of 2010.
Yesterday's move doesn't change the position of the depositors whose money remains covered by the Government's unconditional deposit guarantee.
Customers of both Anglo and Irish Nationwide will continue be able to withdraw their money from their local branch.
Q: What does this mean for Irish taxpayers?
A: The good news is that yesterday's move facilitates the eventual closure of Anglo and Irish Nationwide. The bad news is that the emphasis is very much on the "eventual".
Even after transferring almost €35bn of bad loans to NAMA, Anglo still has €37bn of loans on its books while Irish Nationwide has a further €2.5bn of loans.
These loans, with a book value of almost €40bn, will be transferred to the new, merged institution.
Managing these loans until they are all either repaid or written off could take 10 years or more.
While the Anglo and Irish Nationwide names may be about to disappear, their toxic legacy will endure for many years to come.
Q: What does this mean for Anglo and Irish Nationwide staff?
A: The merger and eventual closure of Anglo and Irish Nationwide is bad news for the staff of both organisations.
Anglo currently employs 1,300 staff, down 250 over the past year, and Irish Nationwide another 450.
Banking analysts expect the merged organisation to employ no more than 1,000 staff within 12 months, a net loss of at least 750 jobs. As the loan book is wound down more staff are likely to lose their jobs with all of the jobs eventually being lost.
Q: Who will buy the Anglo and Irish Nationwide deposits?
A: Good question. Yesterday's statement from the Department of Finance said that: "The bulk of the deposits of both institutions will be transferred to one or more third-party institutions following an auction process."
Who might those "third-party institutions" be? We won't know that until the deposits are actually sold.
But it is no secret that Irish Life & Permanent, whose Permanent TSB mortgage banking subsidiary is largely funded from the inter-bank market, would dearly love to get its hands on the €15bn of customer deposits remaining with Anglo and Nationwide.
Q: How long is all of this going to take?
A: Nothing can happen to either Anglo or Irish Nationwide until the EU Commission has granted its approval.
The Government submitted a restructuring plan for both Anglo and Irish Nationwide to the Commission at the end of last month. According to the Department of Finance, it expects "that there should be an indication of the Commission's assessment as to the restructuring outcome later in the spring".
Given the sedate pace at which the restructuring of the Irish banking system has moved up to now, don't be surprised if this affair drags on until Easter and perhaps beyond.