THE GOVERNMENT has bailed out Anglo Irish Bank with a further €6.4 billion of taxpayer funds and Irish Nationwide Building Society with €2.7 billion, following the European Commission’s approval of further capital injections.
The latest bailouts bring the total capital committed by the Government to Anglo to €29.3 billion and Irish Nationwide to €5.4 billion to meet losses incurred on land, development and commercial property loans.
Anglo has received €25.3 billion by way of promissory notes – Government IOUs – including this week’s capital top-up and State cash of €4 billion last year.
Irish Nationwide has received all but €100 million of the €5.4 billion injected in State aid by way of promissory notes, which allow the Government to spread the cost of the banks over a period of years.
The latest bailout of Anglo, the fourth capital injection since the financial crisis began, covers the €4.9 billion required to meet regulatory capital ratios set in March.
A spokeswoman for the Minister for Finance Brian Lenihan said yesterday that he had signed the notes giving effect to the capital injections and that these final tranches of capital for both State-owned institutions would become effective by the end of the month.
“The cash payments of the promissory notes to these institutions will be provided on a phased basis beginning in 2011,” said the spokeswoman. The Government will inject €3.14 billion of cash into the banks each year over 10 years, starting next year, to honour the promissory notes, according to the 2011 Budget.
The capital injections bring the bailout of the two lenders, which will be wound down over time, to the levels agreed in the third of a series of bank bailouts announced on September 30th last.
The regulator has said Anglo may need a further €5 billion to cover losses under a worst-case scenario where the property market didn’t recover for 10 years.
The Government must submit a joint restructuring plan to the commission by the end of January showing how the two institutions will be wound down over time.
Deposits at Anglo, estimated at about €14 billion and about €4 billion at Nationwide are likely to be moved to other banks to improve their funding and to bring their loans and deposits closer in line.
The commission has already approved three State bailouts for Anglo – €4 billion in 2009, €10.44 billion last March and €10.054 billion last August. The Government had injected €22.9 billion of this.
The latest bailouts in Anglo and Irish Nationwide have been temporarily approved by the commission. Final approval will depend on a plan being submitted showing “an orderly resolution” of the two institutions, how losses will be shared with subordinated bondholders and proper measures to limit the distortion of competition.
