Business Irish

Wednesday 20 June 2018

‘Best bank in the world’ soon turned into a black hole

Stock image
Stock image

Gretchen Friemann

ANGLO Irish Bank has gone down in history as the bank that broke Ireland. It is a byword for failure, catastrophic misgovernance and regulatory lassitude.

Its collapse ushered in a long and painful era of austerity and mired the State in a vicious cycle of recession measures that drained close to €32bn out of the economy between 2008 and 2014.

Looking back, the bank turned into a black hole at astonishing speed.

In 2007, Anglo Irish Bank was named the best bank in the world by experts Oliver Wyman and the World Economic Forum.

It was January 2008 when crisis really set in as investors started to dump Anglo’s bonds, severely disabling the bank’s access to international wholesale markets.

The so-called St Patrick’s Day Massacre of 2008 triggered a 23pc plunge in the share price and wiped close to €1bn off its value.

By September, amid an ever worsening global credit crisis, Anglo had entered a death spiral.

A little over a week after Lehman Brothers went under, the Irish government issued a blanket guarantee of virtually all assets and liabilities of the Irish banks.

In 2011 Anglo’s carcass was paired with the remains of Irish Nationwide Building Society to create Irish Bank Resolution Corporation (IBRC).

Aillied Irish Bank (AIB) took over Anglo’s residual deposit book of close to €9bn.

As its losses mounted, IBRC was liquidated in February 2013, in what was dubbed Prom Night.

To liquidate Anglo, the State had to tear up the promissory note.

It carried a brutal €3.1bn interest bill, that was in effect being paid by the taxpayer to the bust bank, to repay emergency loans from the Central Bank.

On Prom Night, the Central Bank agreed to swap the IOU for normal government bonds.

That deal was only barely allowed under European Central Bank rules, so the State has been gradually buying back its own bonds in €500m chunks.

In the meantime, the business of closing down the bank goes on.

Liquidators have sold off almost all of Anglo’s assets at this stage. They recouped some cash for taxpayers. But the shutdown will be delayed because of outstanding legal cases and closing the lender is projected to cost between €291m and €306m by 2022.

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