Wednesday 22 November 2017

What the sale of the deposits will mean for you

George Garvey

AIB and Permanent TSB have purchased the deposit books of Anglo and the Irish Nationwide respectively.

What does this mean for the depositors and banks selling and purchasing the deposits?

Q: How much?

A: Permanent TSB is purchasing €3.6bn of Irish Nationwide's deposits, while AIB is purchasing €8.6bn of deposits from Anglo Irish. In addition, AIB is purchasing NAMA bonds with a face value of €12.2bn from Anglo for €12bn.

AIB is paying €3.5bn in cash for the deposits, while PTSB is understood to be paying €2.3m.

Q: Why?

A: With the Government having decided to wind down both Anglo and the Nationwide there was really no other option. The uncertainty over their futures has meant that the two banks have been haemorrhaging deposits. The wind-down of both Anglo and the Nationwide and the sale of their deposits was also a condition of last November's EU/IMF bailout.

Q: I have my money on deposit in Anglo and Nationwide. What does this mean for me?

A: In the short term, former Anglo and Irish Nationwide depositors will notice hardly any difference.

AIB and PTSB have both pledged to honour the previous terms and conditions of the deposits, and customers will continue to deal with the same bank staff as the staff members associated with the deposit business have transferred to the new owners.

However, in the medium term things could begin to change. As their problems became more widely known, both Anglo and the Nationwide paid some of the highest interest rates in the market in a desperate bid to attract deposits. Former Anglo and Nationwide depositors may find that AIB and PTSB are less generous when their deposits come up for renewal.

Q: Will the deposits continue to be covered by the government guarantee?

A: Yes. The former Anglo and Nationwide deposits were covered by the Government's deposit guarantees. Amounts up to €100,000 were covered by the Deposit Guarantee Scheme, while amounts over €100,000 were covered by the Eligible Liabilities Guarantee (the open-ended guarantee for deposits with Irish-owned banks introduced by the Government in September 2008). This situation remains unchanged following the transfer of the deposits.

Q: What does the transfer of the deposits mean for AIB and Irish Nationwide?

A: For AIB, which lost €13bn of deposits during the first 10 months of 2010, the infusion of almost €9bn of fresh customer business is a welcome piece of good news. This will mean that it is less reliant on emergency funding from the ECB and the Irish Central Bank to fund its loan book. The new deposits are also very good news for PTSB, which has always been reliant on expensive and volatile inter-bank loans to fund its loan book.

If PTSB can retain most of the former Nationwide deposits then customer deposits would account for almost half of its loan book -- up from less than a third as recently as the end of 2007.

Q: What does the sale of the deposits mean for Anglo and the Nationwide?

A: Yesterday's sale mean that there are now virtually no remaining deposits with either Anglo or the Nationwide. This paves the way for the disappearance of both banks, most of whose loan books have been transferred to NAMA.

Q: What does the sale mean for the taxpayer?

A: Sadly, there is no good news to report here.

The Anglo and Nationwide names may be about to disappear forever, but their loans, which totalled more than €80bn at the end of 2007, won't disappear any time soon.

With the pair set to lose close to €50bn by the time their loan books are eventually wound down sometime around the end of this decade, Irish taxpayers will be paying the cost of the Anglo and Nationwide debacles for many years to come.

Irish Independent

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