If Anglo Irish was to be reinvented as a business bank, Quinn would be its biggest customer, writes JOHN McMANUS

CONSIDERABLE EFFORT has been expended in recent days to prepare the ground for the injection of a staggering €9 billion of additional taxpayers’ money into Anglo Irish Bank.

The chief executive of the bank, Mike Aynsley, has publicly pleaded the case for reinventing Anglo as a business bank. He has argued that the alternatives – shutting down the bank immediately, or running it down gradually over 10 years – would cost substantially more than the €13 billion (which includes the €4 billion already injected by the State) required for his plan.

You could easily get sidetracked into a debate about the veracity or otherwise of Mr Aynsley’s analysis, but there is little to be gained from this.

As anyone who has ever played with a spreadsheet can testify, it is very easy to generate the numbers you need in these situations if you also write the spreadsheet and make the underlying assumptions about factors such as economic growth and interest rates. One suspects that if a few assumptions were changed on whatever spreadsheet Mr Aynsley is using, you could easily enough generate the numbers you need to support the case for pursuing one of the other courses of action open to the Government.

These assumptions could be just as valid as those used by Mr Aynsley, given the level of uncertainty on what the economic landscape will look like 18 months hence, never mind 10 years.

No. The simple truth is that it has been decided by the Government that Anglo will be kept going, and that is pretty much the end of the matter. The reasons for this dogmatism, however, are becoming a little clearer.

A clue lies in the answer to the question: if Anglo Irish Bank is going to be a business bank once it has dumped its €36 billion worth of toxic loans into the National Asset Management Agency (Nama), then who will be its biggest customer?

The answer is the Quinn Group. Once the bank has been “cleansed” of its land and development loans, its loan book will shrink to €36 billion. A good portion of this – perhaps up to €10 billion – will be hived off into a run-off vehicle, and the remainder will form the basis of the new business bank.

Quinn Group – which owes Anglo about €2.8 billion – will account for well over 10 per cent of the new bank’s loan book.

Anglo’s single biggest activity under Aynsley’s plan will be to provide finance to the Quinn Group, and its loans to Quinn will exceed the bank’s capital base.

If you were serious about setting up a business bank, you would not do it this way. And this raises the question of whether or not a large part of the rationale for keeping Anglo going is fear over the possible collateral damage to the Quinn Group of closing it down.

The Quinn Group has written health insurance policies for some 400,000 Irish people, and is the second largest general insurer in the Irish market. It employs thousands of people in these two businesses as well as in its original building materials and cement business. It is simply too big to fail.

So: is the real systemic importance of Anglo its role as financier to the Quinn Group?

It is certainly open to question whether – in the current climate – Quinn Group could find another bank to step into Anglo’s shoes on the same terms.

It already has additional borrowings of €1.3 billion from other banks and bond holders which must be refinanced later this year. The group is confident it will succeed in doing so, but the appetite for further lending by international banks to a business so heavily exposed to the Irish economy must be limited.

On top of this, the Quinn Group and its owners, the Quinn family, have very seriously dirtied their bib over the last few years. We have yet to have anything approaching a proper explanation from the Quinns of why they built a secret 28 per cent stake in their company’s main banker, Anglo, with catastrophic consequences.

The fallout from the affair does not amount to a corporate governance record a prospective lender would put a lot of store by.

The truth is that we really don’t know what would happen to Quinn Group if Anglo Irish was shut down, but it’s safe to say that no one really wants to find out.

The Government, via Anglo, is, for the time being, locked in a desperate embrace with Quinn.

The question is, how do they get out of it? It is worrying that Quinn Group seems reluctant to engage with a number of proposals put on the table by Anglo aimed at reducing its debt. It’s not necessarily surprising, as they involve debt-for-equity swaps and asset sales. All of which are anathema to Sean Quinn, who built the company from nothing over 36 years.

Mr Quinn’s feelings are not the issue here though. It’s taxpayers’ money.