Anglo Irish Digs Deeper Hole

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Wall Street Journal:


Anglo Irish Bank Corp. Chief Executive Mike Aynsley on Tuesday put a €25 billion ($31.7 billion) estimate on the Irish government's bill to bail out the bank, as it reported a huge first-half loss and said it will seek to wind down at least 80% of its business over 10 years.
Ireland has injected €22.88 billion into the bank since it was nationalized in January 2009, the biggest of a series of bank bailouts as a decade-long boom in Ireland's economy reversed sharply. The country's borrowing costs have soared in recent weeks amid worries that the final bill for recapitalizing the banking sector could reach €90 billion or more.
Anglo Irish's CEO says the bank will need another €1.5 billion to €2 billion. Above, the headquarters in Dublin. For the first six months of 2010, Anglo Irish Bank posted a net loss of €8.21 billion, reflecting a €3.5 billion loss on assets sold to National Asset Management Agency, a body set up to handle Irish banks' bad loans, and €4.9 billion in impairment charges.
Mr. Aynsley said he anticipates the bank will need another €1.5 billion to €2 billion to help cover losses from transferring additional assets to NAMA at discounts to face value of as much as 60%. Any additional commitments would depend on the state of the Irish economy and the bank's ultimate restructuring plan, he said.

Mr. Aynsley said a plan to hive off at least 80% of Anglo Irish Bank's assets into a wind-down vehicle and set up a viable "good bank" with the remaining, better-quality assets is "the best alternative to recoup state aid or a portion of the state aid and limit the costs for the Irish taxpayers."

He said the initial plan was to give the new bank a starting loan book of between €15 billion and €17 billion, but that it had been reduced to about €12 billion as the bank's bad loans continue to mount. Impaired loans at June 30 totaled €34.5 billion, or 54% of loan balances, and Anglo Irish Bank said 65% of its loans are considered at risk of becoming impaired.

"What's critical when we identify loans from the portfolio to go into the good bank is that they won't have problems in the future," Mr. Aynsley said. "As we have gone through the process, Ireland has deteriorated throughout the year, so the planned number of loans has been progressively downsized."
Mr. Aynsley said the bank and Ireland government ministers are in "very advanced talks" with the European Commission over the plan, which requires approval because of the €22.88 billion in state aid already received and expectations of additional state support.
Ireland Finance Minister Brian Lenihan Tuesday said final documents were submitted to the European Commission Tuesday, and that the government's central objective in providing support to the bank is to minimize the cost to taxpayers.
Several other European banks that received state aid have undertaken similar restructuring with commission approval, but decisions involve numerous factors such as domestic competition and the prospects for long-term viability. A spokeswoman for the European Commission said the plan is still being analyzed and a decision hasn't been reached yet.
In part because of Ireland's commitments to Anglo Irish Bank, Standard Poor's Corp. last week downgraded the sovereign's credit rating to double-A-minus from double-A, and estimated the government's bank bailout costs could reach €90 billion.
Two of the country's other major banks, Allied Irish Banks PLC and Bank of Ireland PLC, are part state-owned after a series of capital boosts. The ratings agency said Anglo Irish Bank might need as much as €35 billion in capital, a figure Mr. Aynsley rejected.
The cost of insuring Anglo Irish Bank bonds against default widened 0.25 percentage point Tuesday to 6.15 percentage points, meaning it would cost $615,000 to insure $10 million in bonds. The cost to insure Ireland's sovereign debt against default widened by 0.07 percentage point to 3.45 percentage points, or $345,000 to insure $10 million in five-year bonds. In early August, before the latest investor worries over Ireland's financial health, the cost was $200,000.