Bloomberg News

Anglo Irish Needs EU25 Billion, Disputes S&P Figure

August 31, 2010

Anglo Irish Bank Corp. Chief Executive Officer Mike Aynsley said the lender may need no more than about 25 billion euros ($32 billion) in capital, disputing a Standard & Poor’s estimate which helped trigger a downgrade of Ireland’s credit rating.

Anglo Irish, based in Dublin, posted a loss of 8.2 billion euros in the six months through June, after it sold loans at a discount to the government’s so-called bad bank, the National Asset Management Agency.

Ireland’s government nationalized Anglo Irish in January 2009 as bad debts surged. The lender posted a 12.7 billion-euro loss, the biggest in Irish corporate history, for the 15 months through December. Standard & Poor’s, which last week cut the country’s credit rating to AA-, said Ireland may have to inject as much as 35 billion euros into Anglo Irish “over time.”

“We can’t work out where that number comes from,” Aynsley said in an interview today. John Piecuch, a spokesman for S&P, said he couldn’t immediately comment.

The spread between Irish 10-year bonds and German bunds widened 4 basis points today to 357 basis points. It was 306 basis points on May 7, just before the European Union announced a 750 billion-euro financial backstop for the region’s most indebted nations.

Credit-default swaps on Irish sovereign debt climbed 10.5 basis points to 352, the highest level since March 2009. Swaps on Anglo Irish Bank jumped 15 basis points to 614, the highest in more than 13 months.

Price Fall

Anglo is still concerned “that the commercial property market in Ireland doesn’t seem to have stabilized,” Chief Financial Officer Maarten van Eden said.

Commercial real estate prices have fallen 58 percent from the peak of the market in 2007, according to Patrick Koucheravy, property economist with CB Richard Ellis (CBG:US) in Dublin, citing Investment Property Databank figures.

The bank’s capital needs rose as the government’s bad bank, also known as NAMA, paid less than originally expected for Anglo’s loans. NAMA, formed by the government to aid the nation’s ailing lenders, applied a discount of 62 percent to a second batch of loans it bought from the lender.

‘Fluff and Bubble’

About half of Anglo Irish’s original 72 billion-euro loan book is moving to the NAMA, and the government has already provided a total of 22.9 billion euros of capital, mostly by way of promissory notes, to the bank.

That sum includes 8.6 billion euros which was injected on Aug. 23, Anglo said today. The extra capital was approved by the European Commission on Aug. 10.

Anglo’s executives propose splitting the remainder of the loan book into a so-called good bank which would keep lending and a bad bank managing the wind-down of the rest of the loans.

The European Commission will veto the plan, the Sunday Business Post said on Aug. 29, without citing anyone. Aynsley said Anglo Irish is not hearing the “fluff and bubble” around speculation that the commission may veto the bank split plan. He said expects to the commission’s decision on September.

Irish Finance Minister Brian Lenihan said the government sent final documents regarding a decision on Anglo Irish Bank Corp.’s restructuring plan to Europe today.

“We are at a very advanced stage in our discussions with Brussels in relation to the future of the bank,” Lenihan said in an interview with RTE Radio. “Today the final documentation was dispatched from my department to Brussels so that our final strategic decision can be taken about the future of the bank.”

To contact the reporter on this story: Joe Brennan at jbrennan29@bloomberg.net

To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net


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