Belfast Telegraph

Wednesday 23 April 2014

€70bn bailout bill for bank ‘too big to fail’

Closing Anglo Irish Bank was not an option because it would cost more than a year's government expenditure, the Irish Finance Minister has said.

“Those who brought us to this position have a lot to answer for,” Brian Lenihan said in the aftermath of Tuesday's bank |rescue plan.

Figures published by Anglo as it unveiled losses of €12.7bn detailed the potential costs behind Mr Lenihan's estimate.

They say up to €35bn of capital would be needed to absorb losses and €70bn would be needed in government money to fund its existing loans to customers.

Advisers, including KPMG, global consultants Bain & Co and investment bank JP Morgan, have said it would lead to a “very significant” systemic impacts, which have not been costed or included in the €70bn bill including:

The effects of an Anglo asset ‘firesale' on the NAMA project.

The likelihood of Irish Government and banking industry borrowing prices soaring.

The need for further capital injections into other banks as asset prices tumble.

Mr Lenihan said his first priority was that there should be no default on government debt or bank borrowings. “I am firmly of the view that Ireland cannot contemplate a default. The priority in all of this is to protect the status of the ‘sovereign' government debt.”

It was better to keep Anglo in existence and work out the losses over time, which might reduce those losses through gains in the value of the bank's assets. He would consider separating a ‘good' bank from the losses at Anglo, which would be wound down over time.

Meanwhile, shares in Bank of Ireland surged by almost a quarter yesterday after its CEO Richie Boucher said the Irish Government would not be needed to underwrite the €2.7bn share sale the bank has planned.

Anglo claims such a split would cost up to €22bn in capital and less than €15bn in funding. On Tuesday, Mr Lenihan provided €8bn in capital for Anglo and said another €10bn might be needed. The cost will be phased over time with the issue of “promissory notes”, which can be cashed by the bank as needed.

On the market, Bank of Ireland shares gained 30 cent to €1.60. Shares in AIB finished largely unchanged. Credit-default swap prices for both banks fell, signalling improvement in investor perceptions of credit quality.