Saturday 16 December 2017

BoI to raise cash as the State bails out Anglo

Minister says closing down Anglo Irish Bank is 'not an option'

Finance Minister Brian Lenihan
says people have to take
responsibility for issues of
corporate morality
Finance Minister Brian Lenihan says people have to take responsibility for issues of corporate morality

Joe Brennan, Brendan Keenan and Emmet Oliver

SHARES in Bank of Ireland surged by almost a quarter yesterday after its chief executive said it could raise the fresh capital it needs on the markets.

Richie Boucher said the Government would not be needed to underwrite the €2.7bn share sale that the bank has planned.

In the aftermath of Tuesday's bank rescue plan, Finance Minister Brian Lenihan told the Irish Independent that closing Anglo Irish Bank was not an option because it would cost more than a year's government expenditure.

"Those who brought us to this position have a lot to answer for," Mr Lenihan said. "People have to take responsibility for issues of corporate morality."

Figures published by Anglo as it unveiled losses of €12.7bn detailed the potential costs behind Mr Lenihan's estimate.

They say that up to €35bn of capital would be needed to absorb losses and €70bn would be needed in government money to fund its existing loans to customers.

There would also be a "very significant'' negative impact across the banking sector, said Anglo's chief executive Mike Aynsley.

Advisers, including KPMG, global consultants Bain & Co and investment bank JP Morgan, have said it would lead to a "very significant" systemic impact, which has not been costed in and is not included in the €70bn bill.

These would include:

  • the effects of an Anglo asset 'firesale' on the entire NAMA project.
  • the likelihood of Irish Government and banking industry borrowing prices soaring.
  • The need for further capital injections into other banks as asset prices tumble.

Mr Lenihan said his first priority was that there should be no default on government debt or bank borrowings.

"I am firmly of the view that Ireland cannot contemplate a default. The priority in all of this is to protect the status of the 'sovereign' government debt."

It was better to keep Anglo in existence and work out the losses over time, which might reduce those losses through gains in the value of the bank's assets. He would consider separating a 'good' bank from the losses at Anglo, which would be wound down over time -- "although finding a 'good' Anglo will not be easy".


Anglo claims that such a split would cost up to €22bn in capital and less than €15bn in funding. On Tuesday, Mr Lenihan provided €8bn in capital for Anglo and said another €10bn might be needed. The cost will be phased over time with the issue of "promissory notes", which can be cashed by the bank as needed.

On the market, Bank of Ireland shares gained 30 cent to €1.60. Shares in AIB finished largely unchanged. Credit-default swap prices for both banks fell, signalling an improvement in investor perceptions of credit quality.

"The bank recapitalisation plan has put a floor on losses for bondholders," said Matthew Maxwell, a credit analyst at Societe Generale in London. "It gives people more certainty. Now they know the worst and they can move on."

Irish Independent

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