Friday 28 July 2017

Billions more 'will go into Anglo black hole'

Department can't estimate final cost

Laura Noonan and Aine Kerr

THE Department of Finance last night admitted it does not know how much the Anglo Irish Bank bailout will cost, despite promises by Finance Minister Brian Lenihan that the bill would not run to more than €23bn.

As critics raised the spectre of a black hole swallowing billions more in taxpayers' cash, the European Commission gave the Government permission to plough another €10bn into the embattled bank -- on top of the €14bn already approved.

But the department yesterday admitted there was a "significant risk" the Anglo bill might rise even further.

Industry sources suggested that Anglo could need another €2.5bn, depending on the discount the State's bad bank NAMA applies to the troubled Anglo loans it takes on later in the year.

The fresh admission comes just weeks after Mr Lenihan insisted he was "confident" the cost of saving Anglo and Irish Nationwide would be no more than "€23bn to €25bn".

Opposition politicians have slammed the cost of the bailout, saying the money would end up in a black hole and never be seen again.

Sources last night said the ultimate cost of Anglo's bailout would not be known until the nationalised bank has transferred all €36bn of loans earmarked for NAMA.

The first €9bn was transferred at a discount of 55pc earlier in the summer, but the discount rate for the remaining €27bn will not be known for several months.

"If the discount rate rises to 65pc, you could be talking about Anglo needing another €2.5bn," one source said.

In its statement, the Department of Finance admitted there was "considerable uncertainty" around the discounts that would be applied to the rest of Anglo's NAMA transfers.

The loss Anglo may take on the rest of its loan book is listed as another "uncertainty", as well as the outcome of the European Commission's decision on Anglo's restructuring plan.

"Because of the uncertainty facing the bank, there is a significant risk that further capital will be required by it in the future," the department said.

News of further capital demands came after the Government was given EU permission to put another €10bn into Anglo -- higher than the €8.6bn mooted in March.

In granting approval for the latest €10bn of support, the commission's vice president for competition, Joaquin Almunia, stressed that Anglo would have to "restructure profoundly" and tackle the "weaknesses of the past business model".

The commission is weighing up Anglo's restructuring plans and is expected to give a decision in September.

"They seem to be saying that if the commission doesn't feel that Anglo's plan is feasible and completely changes the way that the bank does its business then they (the commission) aren't going to say yes," one source said.

The department attributed the need for yesterday's extra €1.4bn to a technical accounting issue.

Officials said that when Anglo passes its loans over to Nama it gets bonds in return that are essentially IOUs from the State. Anglo expects to hold these IOUs for between five and 10 years.

As the IOUs won't be paid out immediately, Anglo will value them at less than their face value, so every €10m of IOUs might only be worth €8m in the bank's accounts.

That difference between the face value and the holding value could leave Anglo short of capital, so the State has asked for permission to pump in another €1.4bn to plug that hole.

"(The extra €1.4bn) is to cater for that uncertainty and to eliminate the need for a further state aid application to the EU Commission should any capital need eventually arise," the department stressed.

Fine Gael enterprise spokesman Richard Bruton expressed outrage at the extra €1.4bn, demanding that NAMA stops accepting loans from the zombie bank.

"It is intolerable that scarce taxpayers' money is being continuously poured into a bank that will never lend a red cent to business and will form no part of Ireland's economic recovery," Mr Bruton said.

Noose

"It is now critical that NAMA ceases purchasing loans from Anglo, because as the losses on these loans crystallise the need to pour more capital into the bank arises, merely adding to the problem and tightening the noose around the already overburdened taxpayers' necks.

"As was stated by Anglo chief executive Mike Aynsley, the 'lion's share' of the money being put into Anglo would 'never be seen again' and it would 'end up in a black hole'. That represents a depressing reality for the taxpayer, who is being subjected to increased energy charges, multiple levies and a Government that has no jobs plan," he said.

Labour's finance spokeswoman Joan Burton said Anglo had become the "hole that keeps on growing".

"It's taxpayers who are on the hook for these vast sums of money," she stressed. "It's a bottomless pit that keeps getting deeper. These are just vast sums of money and an honest and independent assessment of the bank is urgently needed."

Irish Independent

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