Wednesday 22 November 2017

No quick split for Anglo as Lenihan looks to the lawyers

Brian Lenihan: bank debate. Photo: Tom Burke
Brian Lenihan: bank debate. Photo: Tom Burke

Thomas Molloy and Emmet Oliver

The Government has admitted it will take several weeks to split Anglo Irish Bank into two new banks and the Department of Finance is not even sure whether legislation will be needed.

The Government announced a split plan on September 8, but it will take several more weeks before the details have been agreed here and EU Commission approval will then be needed under state aid rules.

Finance Minister Brian Lenihan may have to bring forward legislation but, in a letter to Labour Party finance spokeswoman Joan Burton, the minister admitted this was unclear.

This morning, the Government will try to reassure nervous bond markets that the bill for Anglo is manageable over the long term. A central case will involve Anglo needing total capital of €29bn, with about €34bn in a worst case scenario.

But included in a large document about the bank's capital levels will be a warning that a worse-case scenario could arise if the loan book deteriorates further and commercial property prices dip more than current forecasts.

Undecided

Ten-year Irish bond yields remained elevated yesterday at 6.6pc, leaving Ireland with the highest borrowing costs in the eurozone after Greece. Many holders of the bonds were awaiting the Anglo announcement before deciding what to do with their holdings, traders reported.

Meanwhile, the announcement was also expected to mention a higher AIB capital requirement. The bank could be forced to raise an additional €450m on top of the €7.4bn announced in March by the Financial Regulator, Matthew Elderfield.

The regulator is forcing the bank to provide for higher-than-expected losses on loans transferring across to the National Assets Management Agency.

The Government is expected to rely heavily on cutting a deal with holders of subordinated bonds in Anglo to keep a lid on the cost of capitalising the bank, even though the amounts involved are relatively small.

Anglo will make a voluntary exchange offer to these bondholders, offering them a small premium to the market price of these bonds. The difference between this price and the face value of the bonds will give Anglo a gain, meaning the total amount of capital needed by the bank is reduced.

The original plan was to make the announcement after markets closed today, but this has been abandoned in favour of an announcement this morning, followed by a press conference in Government Buildings.

Irish Independent

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