STATE-OWNED Anglo Irish Bank estimates that closing the bank over a year would cost €42 billion on top of covering the funding lost due to the closure, the bank’s new management team has told an Oireachtas committee.
Anglo had said a closure would cost €30 billion, but has increased this estimate in a revised restructuring plan submitted for approval to the European Commission.
Mike Aynsley, Anglo’s chief executive, said the “lion’s share” of the €22 billion taxpayer bailout of the bank would “never be seen again” and that it would end up in “a black hole”. Fine Gael TD Kieran O’Donnell said this was the equivalent of two Department of Education annual budgets and one Department of Defence budget.
Mr Aynsley told the Oireachtas Joint Committee on Finance and the Public Sector that the cheapest option was to split Anglo into a good bank and bad bank after selling loans to Nama and that a split was the only option that offers any “payback” to the State.
The bank had considered the cost of an immediate closure or wind-down over five to 20 years.
“Under all scenarios, the €22 billion figure doesn’t change except in the split from a sale of the good bank down the road,” he said.
Anglo chairman Alan Dukes said that there was “no costless way” of resolving the problem. They were also trying to rescue the bank when funding markets had “seized up” and this was lost on many critics of their plan, he said.
Chief financial officer Maarten van Eden said the bank faced “a further horrendous loss” on the remaining €26 billion in loans that it will transfer to Nama over three more tranches.
Anglo has sold €9.3 billion in loans owing by its 10 biggest borrowers in the first tranche.
Mr Aynsley said Anglo had the same level of development loans as Allied Irish Banks. But it was composed differently – just €100 million of Anglo’s Nama loans relate to loans below €5 million.
Mr Van Eden said that 6 per cent of the loans sold to Nama were valued at zero and about 1 per cent were “legally impaired” where the loan value was reduced due to poor documentation. He agreed that this was shocking.
Anglo is prohibited from lending to new customers and had loaned only “marginal” sums, “several hundred million”, to existing borrowers, he said. Responding to criticism that the sum was significant, Mr Dukes said it was “minimal” in the overall context.
Anglo’s €22 billion bailout includes some €2.5 billion which will go towards the good bank under its plan, Mr Aynsley said. The bank plans to create a good bank with loans of €13 billion to €15 billion after moving €35.6 billion to Nama and €20 billion into the bad bank to be run down over time.
The good bank’s loans would be split evenly among Anglo’s existing markets in Ireland, the UK and the US, but the Irish loan business would grow over time.
The scale of bad loans was “a reflection of the madness that went on for a very long period”, Mr Dukes told the committee.
Anglo had set aside €4.8 billion for losses on non-Nama loans last year, said Mr Van Eden, but bad debts on these loans this year would be “significantly less” than expected losses of about €18 billion on Nama loans. Property prices had increased “like a rocket”, before dropping by 50 per cent, he said. He said the bank was assessing further bad loans and losses could “get worse over time” if prices fell further.
The bank’s decision not to waive privilege over records seized by the Office of the Director of Corporate Enforcement in its investigation into the bank would not delay the inquiry, said Mr Dukes.
Mr Van Eden said that the bank was “thinking about” another liability management exercise which would generate capital by exchanging the bank’s €2 billion in outstanding subordinated debt.
