Tuesday 17 September 2019

Anglo needs another €9bn injection of State cash

Joe Brennan and Emmet Oliver

ANGLO Irish Bank will reveal next week its reliance on emergency funding from the Central Bank has increased "significantly" from €10bn a year ago.

The bank has not yet been able to issue bonds publicly under the new State guarantee scheme, as investors continue to wait for the outcome of Brussels' review of its survival plan.

A senior debt market source said the fear is Anglo could have a failed bond sale -- with negative consequences for other banks and the sovereign -- if it went out to the market "without a clear story of what will become of it".

Sources familiar with Anglo's funding situation said it has become more reliant on short term borrowings -- or what's known in the market as commercial paper -- over the past 12 months.

Total borrowings from central banks stood at €23.5bn last March, including a "special short-term liquidity facility" arranged through the Central Bank of Ireland in early 2009.

Anglo, which is set to post a €12bn pre-tax loss on the back of a €14bn bad loan charge for the 15 months to December, will need up to €9bn of additional capital from the State under its restructuring plan. The Government pumped in €4bn last summer.

Following the transfer of €35.6bn of risky loans to NAMA, the group's new management team, headed by Australian Mike Aynsley, hopes to split the other half of the loan book between a 'good' and 'bad' bank.

The bad element would be wound down over time, while Mr Aynsley and his chairman Alan Dukes believe the good bank could become a viable business lender, capable of clawing back money for the taxpayer over time.

While the EU continues to mull the survival plan, the Government has appealed to Brussels to give it the go-ahead to pump further billions of euro of "rescue aid" into the bank.

Government sources said last night it expects to inject capital into the bank on a phased basis, initially tapping a €22bn pool of short-term cash balances managed by the National Treasury Management Agency (NTMA).

The bank confirmed yesterday that a liquidation of the entire bank would cost the State between €27bn and €35bn, while winding it down over a decade would lead to a bill between €18bn and €22bn.

The costing of various scenarios have been carried out by KPMG, investment bank JP Morgan and global consultancy Bain & Co. Sources have said that the costs would be driven by: fire sales of assets, leading to further capital requirements; foreign investors hiking interest demands, or pulling funding entirely; and depositors needing on-going guarantees to keep them on board.

Leading credit agency, Moody's, also recently said that a wind-down of the entire bank even over the medium term would impact the Irish sovereign and the rest of the banking system. It also warned of "severe consequences" for NAMA.

Irish Independent

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