Business Editor John McManusanswers questions about the nationalisation of Anglo Irish Bank
Q Why has the Government nationalised Anglo Irish Bank?
ATo stop it going bust. The Minister for Finance said last night that depositors continued to withdraw money from the bank after the Government announced a recapitalisation prior to Christmas. It is clear that if this trend had continued, the bank would not have had sufficient deposits to cover its liabilities and would have become insolvent.
The damage to the bank’s reputation by the revelations that the chairman of the bank, Seán FitzPatrick, hid details of his loans of more than €87 million, was a factor, according to the Minister.
The amount of money taken out was not disclosed but the Minister conceded that the bank was “weakened”.
Q Is the bank solvent?
AYes. The bank is solvent, it has cash and is now directly supported by the Government. It will have the same credit rating as the Government, currently triple-A, the highest possible and should have access to funding. "The Government unequivocally stands behind it," said the Minister last night.
Q Why didn’t the Government nationalise the bank before Christmas when it announced a recapitalisation?
AThe Government has been able to take a very close look at Anglo Irish as part of the proposed recapitalisation. Having studied the information now available to it – the nature of which was not disclosed – the Government decided yesterday afternoon not to proceed with the proposed recapitalisation of the bank. The Minister said the "balance of the arguments" were for complete State control and the inference is that the situation uncovered at Anglo Irish Bank was so precarious that the proposed recapitalisation would have been inadequate
Q Why could Anglo Irish Bank not be allowed to fail?
AThe bank was considered to be systemically important. This means that the shockwaves caused by it collapsing would have destabilised other Irish banks and adversely affected business.
The Minister also said that it was vital to the economic credibility of the State that deposits in Irish banks are protected. Anglo Irish Bank had deposits of €80 billion.
Q What does it mean for customers of the bank?
AThe bank remains open for business. Anglo Irish Bank said last night it will continue to "trade normally as a going concern and, accordingly, customers and providers of funding can be fully assured of the safety of their deposits and investments, which remain State-guaranteed". However, a new board will be appointed under the chairmanship of Donal O'Connor. It will have to produce a viable business plan for the bank.
Q What does it mean for employees?
AAll of the bank's staff remain employed. Their long-term future will be determined by what now happens to the bank.
Q What will happen to the bank now?
AFor the time being, the bank will be run at arm's length and along commercial lines. The board of the bank will have to review the future of the business.
The Minister left the door open last night to Anglo Irish Bank being turned into a “bad bank” which would take over the problems debts of the other Irish banks as part of a wider restructuring of the sector. An alternative is to turn it into something along the lines of the ICC and ACC banks.
Q What does it mean for shareholders in the bank?
AShares will be suspended on the Dublin and London Stock Exchange this morning. An assessor will be appointed to decide what compensation – if any – will be paid to shareholders. The Minister said last night that the assessor will look at factors other than the share price and compensation will depend on "the true value of the bank at the time of nationalisation". But he also held out the prospect that the assessor may decide that the bank is worthless. On the basis that no one apart from the Government was prepared to buy the bank and it will have to provide financial support, it may well be worthless.
Q What will happen at today’s annual general meeting?
AThe meeting will go ahead as planned but the motion to facilitate the original €1.5 billion recapitalisation will not be put to shareholders. Chairman Donal O'Connor will answer questions from shareholders.
Q What about the recapitalisations of Bank of Ireland and AIB?
AThe Government said last night that it will go ahead with the recapitalisation of the two main banks as planned. The Government plans to take preference shares in the two institutions and underwrite rights issues. The Minister said last night that there were no plans to bring forward the timetable for the recapitalisation of AIB and Bank of Ireland, which is not due to take place until the spring.
However, this may have to be reviewed, depending on how investors and depositors in the two banks react to the nationalisation of Anglo Irish Bank.
Q What does it mean for the Government finances?
AAnglo Irish Bank is now in effect a commercial State body similar to the ESB or Aer Rianta. Its debts do not count towards the exchequer deficit. As the bank is solvent – it has a surplus of assets over liabilities – there is no immediate impact of the Government finances, although funds will have to injected in due course.
The Minister held out the prospect last night that by removing uncertainty over the future of Anglo Irish Bank, the Government has addressed one of the issues putting pressure on the State’s credit rating.
Q What happens to Anglo Irish Bank’s property developer clients?
ATheir debts to the bank remain and will have to be discharged, according to the Minister. However, Anglo Irish Bank's very close relationship with a number of big property developers means that the Government will now have a direct interest in ensuring their survival.
