MINISTER FOR Finance Brian Lenihan has revealed that State-owned Anglo Irish Bank may require an additional €10 billion of taxpayers’ money. This is on top of the €8.3 billion committed yesterday as part of the €21.8 billion bank recapitalisation package announced in the Dáil.
The Government’s banking plan was approved by 83 votes to 68 in the House late last night.
The additional €10 billion – to meet future losses on loans going into the National Asset Management Agency (Nama) – would bring the total cost of bailing out Anglo to €22.3 billion. The State already put €4 billion into Anglo Irish last year to cover its losses up to that point and the Dáil was told yesterday it needs another €8.3 billion – to be injected this week – to cover losses of about €12.5 billion for 2009, which the bank will report today.
The additional €10 billion capital hole at Anglo only emerged yesterday morning when the bank was told that Nama would buy its first loans at a discount of 50 per cent to their original value. Anglo had expected a “haircut” of 28 per cent and based its capital requirements around this figure.
The bank will reveal the highest losses in Irish corporate history today when it publishes its long-awaited results, saying bad loans have surpassed €15 billion.
The higher discount applied by Nama surprised the bank and shocked the Dáil chamber when it was revealed by the Minister.
Mr Lenihan insisted that the cost of winding down the bank, in either the short or long term, would be greater and would generate enormous instability for the State with potentially long-term damage to the economy. The bank has put the cost of winding itself down over 10 years at between €18 billion and €22 billion. “I understand why many want us to lose this bank. I understand the impulse to obliterate it from the system but I cannot, as Minister for Finance, countenance such a course of action,” he said.
Mr Lenihan said that some institutions were worse than others, but the system “to a greater or lesser extent, engaged in reckless property development lending”.
“The detailed information that has emerged from the banks in the course of the Nama process is truly shocking. At every hand’s turn, our worst fears have been surpassed.”
In too many cases, Mr Lenihan added, there were also shoddy banking practices. “The banks played fast and loose with the economic interests of this country.”
Fine Gael finance spokesman Richard Bruton said the taxpayer was now facing a bill of €40 billion or more for bailing out Anglo Irish.
Elsewhere, the Minister said that AIB, Bank of Ireland, Irish Nationwide Building Society and the EBS would need a total of €13.5 billion in new capital. AIB would need €7.4 billion, Bank of Ireland €2.7 billion, Irish Nationwide Building Society €2.6 billion and EBS building society €875 million, he said.
Not all of this would come in the form of new investments, he said; some would be raised privately. It was “probable” that the State would take a majority stake in AIB if it could not raise sufficient capital from the sale of its UK, US and Polish businesses or from private investors, he said. However he expected the State to remain a minority shareholder in Bank of Ireland, which had a “strong future”.
The contrasting prospects facing the Republic’s two largest banks were reflected in late trading on the New York Stock Exchange after the announcement of the bank recapitalisation programme late yesterday afternoon. Despite the €2.7 billion in capital required at Bank of Ireland, shares in the bank climbed 19 per cent, while AIB, which needs “at least” €7.4 billion, fell 7 per cent.
The capital holes at the five lenders were revealed after Nama began buying their most toxic loans at far steeper discounts than it had anticipated last September. Nama is buying some €16 billion in loans owing by the 10 biggest borrowers for €8.5 billion, representing a haircut of 47 per cent, well in excess of the average 30 per cent first estimated last year. The agency chose not to buy €1 billion in loans linked to the top borrowers as the banks were unable provide sufficient security.
Nama chief executive Brendan McDonagh said there had been “an explosion” in the growth of loan books across the banking sector due to property lending between 2004 and 2008. “All the good banking and lending principles went out the window,” he said.
47%: The average discount or "haircut" given on the first loans to transfer to Nama. The expected discount was 30%.
€8.5bn: The amount the State will pay the banks for the first tranche of loans – with a face value of €16.5bn – going into Nama.
1,200: The number of individual loans associated with the 10 developers whose loans made up yesterday's first tranche of transfers to Nama.
