THE GOVERNMENT has decided to nationalise Anglo Irish Bank and has abandoned its plan to inject €1.5 billion of taxpayers’ money into it.
Legislation to give effect to the move will be introduced in the Oireachtas next week and will provide for the appointment of an assessor, who will decide what value, “if any”, the bank has for the purpose of compensating shareholders.
The bank’s shares, which will be suspended today, closed at 22 cent yesterday, meaning the market valued the bank at €164 million. Last January, it had a market capitalisation of more than €7 billion.
During the period of the economic boom, Anglo Irish was considered an aggressively commercial bank. It specialised in large loans to wealthy business figures, including most of the State’s larger property developers.
Minister for Finance Brian Lenihan held a press conference at 8pm yesterday to announce the decision which, he said, had been taken because the funding position of the bank had weakened. He said there had been no “run” on the bank. The bank was a solvent bank but was “in a fragile position”, he said.
“Nationalisation makes it clear that the State unequivocally stands behind the bank.” He indicated that last December’s revelation concerning the former Anglo chairman, Seán FitzPatrick, who hid loans of up to €87 million he had from the bank over an eight-year period, had “caused serious reputational damage to the bank at a time when overall market sentiment towards it was negative”.
“The Government believes that recapitalisation is not now the appropriate and effective means to secure [the bank’s] continued viability. Therefore, the Government must move to the final and decisive step of public ownership.”
The nationalisation decision meant there was now no need to inject €1.5 billion into the bank to recapitalise it, though funding would be required for the bank. It was not possible to say precisely how much, Mr Lenihan said. “The €1.5 billion figure was needed to command market confidence.”
A new board to be appointed by Mr Lenihan would draft a business plan for his approval. The new plan would ensure the bank acted “in the best interests of the State”.
Mr Lenihan said the recapitalisation proposal had been “worth trying” but had not stabilised the situation with the bank.
Last week, in an interview with The Irish Times, Mr Lenihan said: "Clearly, when you nationalise, the risk to the taxpayer is greater because the taxpayer then has to provide the working capital for the bank. Were we to go from the last step before nationalisation to nationalisation itself, the taxpayer will be taking an awful lot of risk with no return."
Taoiseach Brian Cowen, who is in Japan on a State visit, was in constant telephone contact with Mr Lenihan as the situation regarding Anglo Irish Bank developed during the course of the day, his spokesman has said. The Taoiseach presided over the incorporeal Cabinet meeting that decided to nationalise the bank by telephone from his hotel in Tokyo.
Fine Gael spokesman on finance Richard Bruton said the move was the latest U-turn by the Government.
“In December, Fine Gael said it was not appropriate for the Government to pour taxpayers’ money into a recapitalisation plan for Anglo Irish Bank, given the information that had emerged regarding Anglo’s lending practices.
“We formed the view that the public were entitled to have trust and confidence in the banks that they were being asked to recapitalise.
“This latest of U-turns, while the correct decision that will help protect the viability of the remaining banks, does not bode well for the steady and assured management of the economy in the future,” he said.
Labour Party spokeswoman on finance Joan Burton said the decision could prove “quite calamitous” for Irish public finances. She said she was amazed no indications of the likely cost of the move to the taxpayer had been mentioned by Mr Lenihan.
“The Labour Party believes the Dáil should reassemble tomorrow to get a full briefiing of the costs and implications this move will have and to establish the reasoning.”
The bank’s board said an egm, called for today to allow for a vote on the Government’s recapitalisation proposal, would be opened and adjourned.