Nationalised bank could be forced to write off up to €5.3bn of its loan book
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ANGLO Irish Bank could end up writing off up to €5.3bn of loans within the next two years in a worst-case scenario, consultants PricewaterhouseCoopers (PwC) believe.
The firm suggested in its long-awaited report into Anglo, as part of a broader review of the Irish banking system late last year for the Government, that this level of losses would start to eat into the bank's capital reserves.
"The PwC stress scenarios suggest impairment losses greater than Anglo's forecast operating profits before impairment charges in 2009 and 2010," the report said.
Anglo said last December, following a review of its property-focused €73bn loan book, that it would only end up writing off up to €2.76bn of loans over three years.
PwC noted that Anglo believed at the time it would continue to generate profits throughout the downturn, which would be sufficient to absorb any loan losses.
The night before the State guarantee was agreed at the end of September, Anglo was forecasting that it would be €12bn in the red within three weeks, the report into the now nationalised bank shows.
The bank lost €5.5bn in deposits in the previous week and the slide was projected to continue so the bank would have its cash reserves emptied, the report says.
Trigger
The news that Anglo was effectively going bust would have triggered a major run on all Irish banks.
Irish Life & Permanent lodged €4bn with Anglo the day following the guarantee scheme -- bringing the bank's total deposits to €7.5bn.
The PwC report refers to €7.2bn Anglo had moved to IL&P and a subsequent move by a non-bank subsidiary of Irish Life & Permanent to place a "roughly similar amount" on deposit with the ailing lender.
Finance Minister Brian Lenihan last night said the report into Anglo showed that the Government was right to introduce the €440bn guarantee for the banking system.
"The report clearly demonstrates the Government was correct to guarantee the financial system last September at a time when financial market liquidity conditions were under severe pressure," Mr Lenihan said.
Allied Irish Banks and Bank of Ireland pushed for the Government to nationalise Anglo on the night of the guarantee for fear that its collapse would destabilise the entire banking system. There was a draft bill on standby to nationalise Anglo on the night of the guarantee, which was not used.
The report also shows massive exposure to property developers, with 15 clients owing the now nationalised bank more than €500m each.
- Joe Brennan
