ANGLO IRISH Bank chairman Donal O’Connor faces crunch talks with the Government in the coming days over the nationalised bank’s capital requirements in the wake of massive impairments on its property loan portfolio.
Ahead of results from the bank for the six months to March, which are likely to be published on Thursday, Minister for Finance Brian Lenihan said on The Week in Politics programme on RTÉ television last night that the institution’s losses were “somewhat beyond expectations”.
Nationalised amid considerable controversy last January, Anglo is the subject of numerous ongoing regulatory inquiries. In the boom years the bank grew rapidly on the back of its expanding property and development loan portfolio but its performance has plummeted in the recession.
The inquiries centre on directors loans granted to former chairman Seán FitzPatrick, short-term deposits amounting to some €8 billion which were placed in Anglo by Irish Life Permanent last year, and the controversial placement of a 10 per cent stake in the bank last summer to a group of wealthy investors.
The extent to which Anglo’s results presentation will provide any meaningful update on these inquiries remains unclear. The bodies investigating the bank’s affairs include the Office of the Director of Corporate Enforcement, the Garda fraud squad, the Financial Regulator, the Irish Stock Exchange and certain professional organisations.
The first-half impairment write-down is widely expected to be in a range between €3.5 billion and €4 billion, sums that would amount to the biggest corporate loss yet seen in Irish business.
As a result, Anglo will require State capital significantly in excess of the €1.5 billion promised by Mr Lenihan before the bank was nationalised to maintain its capital ratios.
Some commentators believe that the overall requirement may well exceed €3 billion. However, the exact sum is still subject to negotiation between Anglo and the Government. Following the recapitalisation of Allied Irish Banks (AIB) and Bank of Ireland, Anglo’s growing requirement for capital will place yet more strain on the public finances.
Asked last night about the bank’s capital requirement and the adoption of a new business plan for the institution, Mr Lenihan’s spokesman said only that “no decisions have been made”.
The Minister said in the Dáil earlier this month that Anglo was likely to require additional capital but said the extent and timing of what was needed was still being assessed and discussed.
The imminent release of Anglo’s interim results is likely to bring that process to a head as the bank is unlikely to go ahead with publication in the absence of a clear signal of intent from the Government.
Also involved in talks on the Anglo position is the Financial Regulator, which is in charge of policing bank adherence to their capital ratio requirements.
Informed sources said there was still no resolution in talks on the possibility of the regulator granting Anglo a waiver from strict capital rules to reduce its immediate requirement for new capital from the State.
However, a derogation for a specified period is seen in some quarters as a virtual inevitability as the Government would require EU state aid approval for any public recapitalisation. This is because the realisation of a large impairment loss would trigger a breach of Anglo’s capital ratio once its accounts are published.
At issue is whether Anglo can receive a waiver from capital rules in light of its ownership by the State. A waiver is technically feasible, but Anglo would have to set out a clear path to a restoration of stability on its balance sheet.
