Hidden loans have damaged access to vital cash
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THE scandal over hidden loans to directors has damaged Anglo Irish Bank's access to crucial funds, despite the bank being guaranteed by the Government.
Anglo depends heavily on borrowing from the money markets to make loans to customers. Although the loans may be for many years, the market borrowing to cover them has to be replaced every few years.
Since the credit crisis, banks have found it difficult to do these replacements and aggressive lenders like Anglo would have found it impossible without the guarantees. But the revelations over the loans has added to the difficulties, the report says.
These were "exacerbated by reputational damage relating to directors' loans, and adverse ratings actions, which further weakened the bank's competitive position in funding markets at a time when overall market sentiment was negative", it says.
The accounts show that deposits from other banks rose from €7.5bn in 2007 to over €20bn last year. This was needed to offset a fall in other types of borrowing in money markets.
The bank has also lost important company deposits, and those placed on deposit are for shorter terms than before.
These deposits include the controversial €7bn from Irish Life Assurance which, it is alleged, may in effect have been Anglo's own money.
"One of the key objectives for the coming periods is to extend the duration, and thereby the overall quality, of this book (of deposits)," the report says.
Anglo is determined to re-emerge as a successful bank. Whether it can do so may decide how much the taxpayer ultimately has to pay to stand behind it. If it can generate new business, the profits could be used to offset the inevitable losses on existing loans.
Losses
"A key priority of the new board is to ensure we regain our position in the corporate, wholesale and debt capital markets," the report says.
It will seek to become a "broader, more diversified business bank", and will deal "vigorously and professionally" with all issues from the past.
But the bank has only begun the painful process of taking losses on its property loans.
These accounts mark down just 1.3pc of its loan book -- and even that comes to €700m. More will be taken on board with the next results, at the end of next month, and for several more years beyond that.
- Brendan Keenan
