MINISTER FOR Finance Brian Lenihan has asked the European Commission to allow the State to guarantee large corporate deposits in Anglo Irish Bank as it embarks on a wind-down of the bank’s business.
The request comes three weeks before the Government guarantee of short-term commercial deposits in six participating institutions expires.
Such deposits are particularly sensitive to any change to the scheme as they are typically overseen by professional managers who are considered likely to move their money elsewhere if State protection is not extended.
Mr Lenihan met competition commissioner Joaquín Almunia in Brussels yesterday for more than an hour of talks on Anglo and the Irish financial sector generally, which both sides described as “constructive.”
Amid mounting concern in the EU executive about the potential for uncertainty over Anglo’s fate to disrupt financial markets, Mr Almunia is to give an early signal to the Government on the outcome of his inquiry into its plans for the bank.
His final decision is some way off, but the commissioner is likely to call for Anglo to be wound down over 10 or 15 years. His office is likely to issue a preliminary ruling to that effect in the near future.
Fresh State capital would not be required in that case to establish a new “good bank” from the ruins of Anglo, something the Government no longer wishes to provide.
A highly placed source said the Cabinet considers the nationalised bank to be “politically and economically toxic” as a result of the controversy surrounding commitments already given to recapitalise the bank by more than €23 billion.
Nevertheless, continued State support in the form of new guarantees over the bank’s deposit book is considered essential. To avoid capital flight between banks, it may well be that the protection over such deposits would have to be offered to all six institutions.
Anglo has called for an extension of the existing guarantee, as has Allied Irish Banks. In Anglo particularly, there are fears that the removal of the guarantee would seriously undermine its capacity to retain big deposits it holds for commercial customers. The Government shares this concern, it is understood.
An extension or a renewed guarantee would require Mr Almunia’s approval as such protection constitutes State aid to participating banks. Mr Lenihan’s spokesman declined to comment on this aspect of the talks.
While the discussion comes as Irish banks prepare to refinance more than €25 billion of maturing debt in the coming weeks, Mr Lenihan said on RTÉ radio that he did not anticipate the banks would encounter difficulty.
Without specifically referring to corporate deposits, he said a gradual phasing out of the guarantee was likely. This was seen to reflect some confidence that Mr Almunia will grant an extension of the protection of short-term corporate deposits.
“And so, for example, retail depositors who at all times are guaranteed up to a limit of €100,000 will have their deposits guaranteed, beyond the guarantee date,” said the Minister. “So I think that’s an important point, that it’s not envisaged that it will simply move off the guarantee in one second, at midnight on the 29th of September. There’s a gradual phasing out of the guarantee.”
Mr Lenihan, who disclosed yesterday that the Budget will be delivered on December 7th, said he hoped the Government would be able to make a final decision on Anglo within weeks. He also insisted the costs associated with the bank’s rescue were “manageable”.
“I must say I was a bit concerned to see yesterday, a suggestion that a lot of public opinion believed that Anglo Irish Bank will bankrupt the country,” he said. “That’s simply not the case. At all stages, the governor of the Central Bank has made clear, and I have made clear, that the costs are manageable. Yes they’re annoying, they’re infuriating, but they are manageable.”
Taoiseach Brian Cowen said yesterday the Government was seeking a solution in relation to Anglo that “was in the best interests of the taxpayers” and that all options were being looked at.