Minister sought orders over threat to financial system

THE MINISTER for Finance has secured High Court orders permitting the first steps in a process intended to achieve the orderly and speedy winding down of State-owned Anglo Irish Bank and Irish Nationwide Building Society.

Those steps, a condition of the EU-IMF bailout plan, include the transfer – following an auction – to another financial institution of deposits and “corresponding assets” in both institutions.

The decrease in deposits in both Anglo and Nationwide is destabilising them and the Irish financial system, the court was told.

Some material relating to the position of Anglo and Nationwide was blacked out in documents provided to the media following yesterday’s application. The redacted material was described as “commercially sensitive”.

If the deposit sales process has a negative impact on the capital position of Anglo and Nationwide, the State will have to provide additional capital but the impact of any capital loss would be “more than compensated” by having certainty about the restructuring and work-out plans, the State said.

Both institutions are to take various steps – including preparing a plan by March 31st for disposal of Anglo’s wealth management division and transferring loans to Nama – before merging into a smaller, State-owned institution.

Ann Nolan, second secretary general of the Department of Finance, said in an affidavit the Minister believed the orders were urgently needed to address an “imminent threat” to the financial stability of the institutions and to the financial system of the State.

There was concern any prolonged auction could significantly reduce the amount of deposits held and lead to “unjustified concerns” about their safety.

Ms Nolan said the court orders were also necessary to address concerns related to some €7 billion of Anglo’s debt securities held by mainly non-Irish investors. If those bondholders sought to invoke certain clauses as a result of the proposed restructuring and insisted their bonds were immediately due and payable, this could lead to Anglo becoming immediately insolvent unless more liquidity was provided.

She did not consider the orders sought by the Minister amounted to an event of default. But, given the potentially serious consequences, it was necessary to avail of the protection offered by section 61 of the Credit Institutions Stabilisation Act (CISA) which “switched off” the right to enforce or accelerate bondholders debts.

The European Commission and IMF had “pressed very strenuously” to have the various measures put in place urgently, the court also heard.

The plan for Anglo and Nationwide submitted on January 31st last to the commission requires both to take several measures including reducing net lending to customers and the transfer of remaining eligible loans to Nama.

Anglo must also formulate detailed plans for rationalisation, including closing its branches in the UK, Vienna, Dusseldorf and Jersey and dispose of its wealth management division. Nationwide must reduce its net lending to customers and limit increases in residential property lending to contractually committed amounts or sums arising from restructuring of existing mortgages.

Granting the orders, Mr Justice Brian McGovern said he was satisfied the Minister had complied with the formal procedural steps required under the CISA.

He was also satisfied the Minister’s belief the orders were necessary was reasonable and lawful. The judge was told by Brian Murray SC, for the Minister, that both Anglo and Nationwide had consented to the orders.