FUNDING:STATE-OWNED ANGLO Irish Bank will require at least €29.3 billion in taxpayer funding and as much as €34.3 billion under a worst-case scenario, where the property market does not recover for 10 years, the Central Bank has said.
The cost of the Anglo bailout has risen as a result of higher-than-expected discounts being applied by the National Asset Management Agency (Nama) to €35 billion in toxic property loans it is purchasing from the bank.
Minister for Finance Brian Lenihan said Nama would be applying a discount of 67 per cent on the remaining €19 billion of loans to be moved to the agency.
This is an increase on the 55 per cent discount applied to the first tranche of Nama loans purchased from Anglo last May and the 61.9 per cent applied to the second tranche in August.
Anglo has so far transferred €16 billion in loans to Nama and the remaining transfers will be accelerated and completed by the end of this month, Mr Lenihan said. The process is being expedited to allow a funding bank and asset recovery bank to be created out of Anglo as part of the plan to run down the bank over 15 years.
The bank’s expected cost of €29.3 billion includes €29 billion in capital for the asset recovery bank and €250 million for the funding bank. The extra capital will be injected on a State promissory note or IOU, drawing down funds over a long period of time.
Some €23 billion in capital has already been pledged by the Government for Anglo.
The Central Bank said the cost of the bank would rise to €34.3 billion under a hypothetical severe stress scenario where a 70 per cent haircut is applied to the remaining €19 billion Nama loans.
The scenario also considered Irish commercial property prices falling 70 per cent and only recovering to 57 per cent of their peak value within 10 years or where prices would fall 65 per cent and not recover until 2020.
The estimated costs do not include any gain from Anglo’s plan to buy back subordinated debt of €2.4 billion at a discount to the value at which it trades in the markets. It also does not include any potential lower capital requirement that may arise from the reduction in the size of the bank as the Government runs down the Anglo asset recovery bank which will hold €38 billion in loans.
Some €1.8 billion of dated subordinated debt – funding provided for a risk premium by investors – fell outside the two-year Government guarantee yesterday.
Mr Lenihan said the Department of Finance and the Attorney General are working on legislation which will allow the Government to share the losses of Anglo and Irish Nationwide Building Society with subordinated bondholders.
“I expect the subordinated debt holders to make a significant contribution towards meeting the costs of Anglo,” he said.
However, the Minister has ruled out asking senior bondholders – whose debts have equal ranking with depositors – to share losses.
Talks with senior bondholders would be “completely unreal”, he said. “We are not going to tell the bank manager we are going to default prior to asking for more money,” Mr Lenihan said.