Sunday 17 December 2017

Losses at Anglo and Nationwide could add €1bn to state spend

Brendan Keenan

THE rescue of the big two banks may not pose any additional cost on taxpayers, but losses at Anglo Irish and Irish Nationwide may add more than €1bn a year to government spending.

There will be no return from the €25bn pledged to the two insolvent property lenders, said John Fitzgerald, research professor at the Economic and Social Research Institute.

"Every cent that goes into Anglo -- it is hard to see them getting anything back from that," Dr Fitzgerald said.

With much of the new capital for the banks coming from the conversion of loan-type preference shares, which the government already has in the banks, plus fresh investment from the national pension fund, the €11bn rescue of the other banks would not have added to government borrowing.

Credit rating agency Moody's calculated that, while the rescue would increase national debt by around 30pc of output (GDP), there would be no significant increase in debt costs, which is what matters both to taxpayers and lenders to the government.

Other ratings analysts made similar comments over the weekend. "Ireland's credit rating is likely to remain unchanged at this stage," Christopher Pryce, of Fitch Ratings said.


However, these figures do not take account of the extra €10bn, at least, which Finance Minister Brian Lenihan indicated the bank would need to fund its existing loans to customers and repay its depositors.

Exchequer returns published on Friday showed that costs of paying interest on the rising national debt are estimated at €4.5bn this year.

Next year's planned €17bn in borrowing will add around €900m to that, and the costs of the Anglo rescue will start to kick in.

The new Anglo executives will this week start the process of trying to replace €7bn in the bank's own borrowings which are due for repayment in September, possible only because the bank is nationalised.

Unlike government capital, it will not be new money, so any cost will be just any difference between the interest rates and the old ones.

Without the new funding, Anglo would fail and be unable to pay much -- or even most -- of its liabilities, although many commentators argue that this would be the better policy.

Meanwhile, it has been confirmed that the inter-company guarantees in the Quinn Group were published in the group's annual accounts, but the Regulator may still not have been aware until some time after. .

The guarantees led Financial Regulator, Matthew Elderfield, to have a provisional administrator appointed to Quinn Insurance.

"They were always in the accounts of the subsidiaries," said Quinn Group chief executive Liam McCaffrey.

Irish Independent

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