Lehman 2: Anglo Irish To Be Split Into A Funding Arm And An Asset Recovery Bank
News out of the Irish government is that Anglo Irish bank will be split into a funding bank and an asset recovery bank, saying that the bank's "own plan in its current form does not provide the most viable and sustainable solution." Those who are familiar with Lehman will recall that this was a plan expected to be put into place for Lehman, in which a CRE-asset holding division would be spun off and allowed to roll off its assets. This plan was scrapped as it was deemed unviable. Glad to see it will work in Ireland.
Full statement on Anglo Irish:
Statement – Anglo Irish Bank
The Minister for Finance today briefed his Government colleagues on the strategic options for the future of Anglo Irish Bank. The Minister conveyed to the Government the views of the Board of Anglo Irish Bank, the Central Bank, the National Treasury Management Agency, the Department of Finance, the EU Commission and his own assessment of the position.
The Government decided that Anglo Irish Bank will be split into a Funding Bank and an Asset Recovery Bank. Anglo Irish Bank has not expanded its loan book since it was nationalised in early 2009 and this will remain the case. It is intended that in due course the Recovery Bank will be sold in whole or in part or that its assets will be run off over a period of time.
The guaranteed position of depositors will be unchanged by the new arrangements and no action is required of them as a result of today’s announcement. The depositors will become customers of the Funding Bank which will be fully capitalized and continue as a regulated bank.
In order to restore the reputation of the Irish Financial System it is essential to bring finality to the problem of Anglo Irish Bank – our most distressed institution.
The Government’s primary objective in dealing with Anglo Irish Bank has been to minimise the cost of this distressed bank to the Irish taxpayer.
The Board of Anglo Irish Bank submitted its preferred option to the Minister and to the European Commission at the end of May for consideration under State Aid rules. The board’s plan envisaged splitting the bank into an asset management company and a new good bank. The asset management company would have managed out over time the bank’s lower quality assets remaining after the transfers to NAMA. The new good bank would have managed the remaining share of the loan book, retained the bank’s deposit funding and sought new lending opportunities to grow the bank.
The Minister acknowledges the good faith and hard work of the board in producing a credible proposal for the future of the bank.
However, the Government has concluded that this plan in its current form does not now provide the most viable and sustainable solution to ensure the continued stability of the Irish banking system.
In these circumstances, the Government has decided to opt for a variation of the board’s restructuring proposal. The Government’s decision does not affect existing guarantee arrangements.
Under the restructuring plan, the Funding Bank will be a Government-backed/guaranteed specialist deposit bank which will contain the bank’s deposit book. It will be a stand-alone, regulated bank, completely separated from Anglo’s loan assets and it will be owned directly by the Minister for Finance. This bank will not engage in any lending, but will provide a secure home for Anglo’s depositors and any new customers who wish to deposit their funds with it. Depositors with the Funding Bank will be completely insulated from the future performance of the rest of the current Anglo Irish Bank loan book.
The Asset Recovery Bank will also be a licensed regulated bank. Its dedicated focus will be on the work-out over a period of time of the assets not being transferred to NAMA in a manner which maximises the return to the taxpayer.
The Government believes that it is essential to identify, with as much certainty as possible, the final cost for the restructuring and resolution of the bank. This will underpin international financial confidence in Ireland. Accordingly, the Central Bank will determine the appropriate levels of capital needed in both institutions. Its decision will be announced by October.
The Department of Finance has conducted intensive discussions with the EU Commission in recent weeks about the future of Anglo Irish Bank. The Minister for Finance met Commissioner Almunia last Monday to discuss the issue. A formal detailed plan is being prepared for submission to the Commission for approval.
The Minister said:
“Today’s decision by the Government will provide certainty about the future of Anglo Irish Bank. Resolution of this, our most distressed institution, is essential to the promotion of confidence and stability in our financial system.”
8th September 2010