Anglo Irish Bank reports €12.7 billion pretax loss

Anglo Irish Bank has reported a pretax loss of €12.7 billion for the 15 months to end of December 2009 after writing off €15 billion in bad loans.

The losses are believed to be the largest in the State’s corporate history.

The nationalised bank said it had made an operating profit of €2.4 billion before impairments, including a gain of €1.8 billion on the repurchase of capital securities.

Anglo said the results reflected an “exceptionally difficult 15-month period”.

The bank has written off €15.1 billion on bad loans, including €10.1 billion on €35.6 billion in loans to be transferred to the National Asset Management Agency (Nama).

Anglo said it expects to transfer loan assets with a nominal value of €35.6 billion to Nama in 2010 with a carrying value of €25.5 billion. After this transfer, it said, Anglo would have about €36.5 billion in customer loans with cumulative specific provisions of €3.7 billion.

Chief executive Mike Aynsley said the restructured organisation “will have a role to play in the national recovery, acting as a domestic and international fundraising platform for the Irish economy and providing commercial banking services to assist Ireland's recovery and growth".

Net interest income for the 15 months was €1.5 billion, a decline of 35 per cent compared to the year ended 30th September 2008. The bank noted the cost of funding had increased materially during the period.

Total operating expenses totalled €380 million, down 7 per cent on the previous year on a like-for-like basis.

Restructuring activities and Nama-related costs were €42 million. Customer deposits at Anglo have also fallen sharply, dropping from €51.5 billion on September 30th 2008 to €27.2 billion at the end of 2009.

Over the same period, borrowings from central banks increased to €33 billion from €7.6 billion.

The Government, which had already invested €4 billion of capital into the lender, said yesterday it will invest another €8.3 billion via a promissory note this week and added that Anglo could need another €10 billion to cover future losses. This would bring the total taxpayer recapitalisation required by Anglo to over €22 billion.

Anglo’s annual report also outlines that the directors' pay, pensions and benefits for the period topped €3.3 million.

The bank also paid former chief executive David Drumm a deferred bonus payment of €659,000 on December 12th 2008, only a week before details of loans taken out by the bank’s former chairman Sean FitzPatrick came to light.

Mr Drumm is also in dispute over €669,300 deferred performance bonus that was discosed in the year to September 30th 2006 and was due to be paid last December.

Ex-finance director William McAteer received €439,000 on the same date. Both bonuses had previously been disclosed by the bank in the year ended September 30th 2005.

It also highlighted a subsequent performance bonus that was due to be paid to Mr McAteer in December 2009 of €446,000 had not been paid.

Other bonuses paid out include two separate payments of €219,800 and €262,223 to Declan Quilligan in December 2008 and March 2010 in respect of the financial years to the end of September 2005 and 2006.

Former director Pat Whelan, who left the bank last December, was paid €192,325 on December 12th 2008 and €223,100 in December 2009 for deferred performance bonuses in respect of the same years.

However, the report also shows outstanding loans to directors of more than €150 million at December 31st 2009, with provisions for impairment of more than €108 million.

The largest amount was borrowed by Mr FitzPatrick, who had a total of €85 million. Mr McAteer had loans totalling €8.5 million. Mr Quilligan, who had €3.8 million in loans from Anglo Irish, was paid more than €2 million when he left the bank earlier this month.

Mr Whelan had €5.8 million in loans from the bank, according to the results. Non-executive directors Lar Bradshaw and Gary McGann had loans of €27 million and €10 million respectively.

In the annual report, outgoing Anglo chairman Donal O’Connor admitted the bank had wildly underestimated the expected knock-down on their assets last year.

“Unfortunately, our stress scenarios have been more than realised and reflect the very severe deterioration in asset values in the marketplace since March 2009.”

Management is working with the finance ministry on a plan to "significantly restructure the bank's balance sheet, risk profile and culture in order to restore viability," Anglo Irish said in a statement today.

Winding down the bank now would cost more than €30 billion, Minister for Finance Brian Lenihan said yesterday in the Dáil.

He maintained the bank could become profitable in the medium term and be sold in five years to 10 years after the State pumps in more capital, he said.

Only the taxpayer could provide the capital required to make that happen, Mr Lenihan said, describing the recapitalisation of Anglo as the “least worst option”.

The European Commission today providing temporary approval for the State recapitalization of Anglo Irish and opened an investigation into the bank's restructuring.

The bailout comes as the country grapples with a budget deficit that reached 11.7 per cent of gross domestic product (GDP) last year. The premium investors charge to hold Irish 10-year debt over the German equivalent was at 138 basis points today compared with 284 basis points in March 2009, a 16-year high.

"The cost of cleaning up Anglo may add €20 billion to Government debt over 10 to 15 years," said Rossa White, chief economist at Davy stockbrokers. "It's unprecedented, but manageable."