THE DAY before the Government announced its plan to wind down Anglo Irish Bank, the bank told politicians at a briefing that a 10-year wind-down would cost an additional €3.5 billion on top of the current estimate of €25 billion.
Given that Anglo will be split into a funding bank and an asset-recovery bank, can we expect the cost to top €28.5 billion?
The Government’s “work-out” plan is different, says Anglo. This variation on Anglo’s rejected good bank/bad bank plan is not in the rundown costed in the two Anglo plans filed with the European Commission.
“I suspect we are going to be somewhere in between,” said Anglo chief executive Mike Aynsley. “I don’t know if it’s fair to compare the two – we didn’t have a funding bank in the plan.”
It will take three to four weeks before the bank has “a far better idea” of the final cost of Anglo and the changes required, he said.
The Financial Regulator should have put a cost on the plan for Anglo by the start of next month.
As it stands, there are many “known unknowns”. The losses on the remaining €20 billion in loans yet to move to the National Asset Management Agency (Nama) remain unclear.
Every 5 per cent hike above the recent 62 per cent haircut on the second Nama tranche means an extra €1 billion on the State’s bill. Nama said yesterday it would speed up Anglo’s loans transfers, if asked.
Then there is uncertainty over how much the bank will lose on non-Nama loans, primarily the Irish loans. The table shows some €7.5 billion has been set aside to cover bad debts of €14 billion on the non-Nama loan book.
The number to watch is the €4.2 billion of “uncertain” Irish loans. A 50 per cent loss on this means a further €2.1 billion call.
“If there are problems, they will be in Ireland,” said Mr Aynsley, as Britain and the US were recovering faster.
Anglo’s chairman Alan Dukes said on Vincent Browne’s TV3 show on Thursday that providing certainty on the final cost of Anglo to ease market nerves was more important than the figure itself.
“If we err, it should be on the pessimistic side so that we don’t have to come along six months later and say that things seem to have changed and the figure is bigger,” he said.
There are many moving parts to this puzzle and a clear picture of the cost cannot yet be seen. The Government and Anglo say we are approaching the end game, but the market will seek final clarity that all the parts stop moving.
