The Government has taken the first legal steps in the merging and eventual closure of Anglo Irish Bank and Irish Nationwide Building Society.

The Minister for Finance has secured High Court orders clearing the way for the first steps in a process intended to achieve the effective winding down of State-owned Anglo Irish Bank and Irish Nationwide Building Society.

Unless the orders were made, there was a real risk both institutions would be destabilised, the court was told.

Mr Justice Brian McGovern made orders today permitting immediate steps to be taken for an auction, to be carried out by the National Treasury Management Agency, of deposits and "corresponding assets" in both financial institutions.

The auction is expected to lead to the deposits and assets in both institutions being transferred to another institution while Anglo and the INBS will ultimately be merged into a smaller government controlled institution.

Other measures to be implemented include the sale of Anglo's Wealth Management Division by March 31st next and the closing of its offices in the UK and its branches in Dusseldorf, Vienna and Jersey by Nama is also to be completed.

The judge said he was satisfied the Minister had complied with the formal procedural steps required under the Credit Institutions Stabilisation Act and that the Minister's views that the orders were necessary was both reasonable and lawful. He was also satisfied the steps could properly be categorised as a reorganisation measure under the relevant EU directive and legislation.

The judge was earlier told the orders were necessary for the reorganisation and restructuring of both institutions and essential not just for their stability but for the stability of the financial system here, the court was told.

The measures were also required under the bail-out programmes for Ireland agreed with the EU and the IMF and there had been pressure from those bodies to put the measures in place by the end of last month, it was stated.

The court also heard the Governor of the Central Bank had been notified, as required, of the planned transfer of the deposits and had referred to risks in that process but was satisfied the court directions sought by the Minister were necessary.

The application for the orders was made by Brian Murray SC, for the Minister, under Section 9 of the Credit Institutions Stabilisation Act, just after 11am today.

The fact of the application being made could not, by court order, be published until the court had made the orders sought by the Minister. Mr Murray said the interim restraint on publication was necessary because it would be detrimental to the institutions involved if the terms of the proposed auction were published before the court orders were made.

At the outset, Mr Murray said the Minister was content that his application for the orders be heard in public on the basis that certain confidential information would not be published and would be redacted from the order and other materials.

Cian Ferriter, for The Irish Times, said this was a responsible position for the State to adopt because his client had an apprehension, based on a previous application under the CISA (for effective nationalisation of Allied Irish Bank), the matter might be heard in private.

Counsel said The Irish Times could not gainsay the contention the materials before the court contained commercially sensitive material but wanted to draw attention to the fact the Supreme Court has made clear that any exceptions to the constitutional requirement that justice must be administered in public must be narrowly construed.

On the application to restrain publication pending the making of any orders by the court, Mr Ferriter said the longer the public was kept in the dark, the more concerned The Irish Times would be. This was a matter of vital public interest relating to an institution in public ownership which has been given taxpayer's money, he added.

Under proposals submitted to the European Commission, deposits at both institutions – estimated at less than €14 billion at Anglo and about €4 billion at Irish Nationwide – will remain guaranteed by the Government.

The remaining loans – about €37 billion at Anglo and €2.5 billion at Irish Nationwide – will be run down over a period of years in winding up of the merged entity.

The proposals were submitted under the €85 billion aid programme agreed by the Government with the European Union and the International Monetary Fund.

In a statement today, Irish Nationwide chief executive Gerry McGinn said the order provided further clarity on the future of the institution and the Government’s planned restructure of the banking system. "We acknowledge the continued support of the State and will comply fully with the direction order," he said. "Customer deposits remain fully secure, our branch network remains open and customers should continue to transact as normal."

The NTMA said the position of employees affected by the transfer will be safeguarded in accordance with employment legislation. However, the restructuring of the two lenders is expected to result in job losses across both institutions.

Early estimates suggest that between 100 and 200 jobs may be lost across both institutions initially in the merger if it is approved by Brussels. Anglo has a about 1,300 staff and Irish Nationwide about 450, of whom about 200 are based across 50 branches.

The combined headcount of the merged entity, which will include the Nama units of both institutions, could fall to about 1,000 within about a year of the merger.

In a statement this afternoon, the Irish Bank Officials' Association (IBOA) expressed serious concern over the decision by the Minister for Finance to authorise the auction of the Irish Nationwide deposits.

"The Minister's decision runs counter to the previous expectation that the INBS deposits would be transferred to one or more other Irish institutions as part of a strategic approach to the restructuring of the banking sector in this country," said IBOA general secretary, Larry Broderick.

"It appears now that the Minister values short-term expediency more than the long-term stability of the financial services sector in Ireland.

"Instead of using these deposits strategically to buttress the balance sheets of one or more of the Irish institutions covered by the State guarantee, the Minister is offering them for sale to the highest bidder, regardless of the consequences to our domestic banks," he said.

Mr Broderick added Mr Lenihan's announcement "fails to shed any light" on the implications for staff at the company.