STATE-OWNED Anglo Irish Bank is preparing to post losses of between €10 billion and €12 billion – the largest in Irish corporate history – when it announces its financial results over the coming weeks.
The bank is expected to write off the record amount for the 15- month period to December 31st, 2009 as it faces an estimated discount of 35 per cent on €30 billion-€35 billion in loans being moved to the National Asset Management Agency (Nama).
Anglo’s new management team is taking an aggressive yet realistic view of the bank’s exposure to the collapsing property sector and wider economy. The bank plans to recognise higher losses on business loans.
The losses will deplete the bank’s capital reserves, triggering the need for more cash from the Government, which has so far invested €4 billion.
Anglo is estimated to need a further €6 billion – and possibly more – depending on regulatory capital requirements and whether its restructuring plan is approved by the EU.
This will bring the running total on the Government’s bank recapitalisations to €17 billion, with a further €2.4 billion needed at Irish Nationwide and EBS building societies.
AIB and Bank of Ireland need capital of about €7 billion, analysts estimate, in addition to the €7 billion already invested by the State.
Both banks have said they plan to raise capital through internal restructuring of their debts, selling businesses or from private investors.
The Government has said it is willing to take increased ownership in the banks if they cannot raise sufficient capital privately.
A more pessimistic view of loan valuations at Anglo could lead to closer investor scrutiny of bad debt provisioning at AIB and Bank of Ireland, complicating their plans to tap investors for additional cash. AIB is set to report results for 2009 tomorrow.
The Government is examining ways of spreading the costs of the banking rescue over several years.
Anglo will try to curb the future capital drain on the Government by splitting into “good” and “bad” bank operations after the Nama transfers.
Turning the “bad bank” unit into a non-banking vehicle to run down some loans may allow Anglo to reduce the capital it must hold.
The European Commission is assessing the restructuring plan submitted by the bank last November.
Fine Gael Senator Eugene Regan called on the Government to ensure private investors rather than taxpayers will be hit for the capital bill arising at Anglo. It was clear Nama loan transfers would leave Anglo and Irish Nationwide insolvent, he said.
“The commission’s guidelines make it clear that in such a scenario, insolvent banks should ideally be broken up and/or wound down in an orderly manner . . . with losses being absorbed first and foremost by private investors, including certain classes of bondholders,” he added.