Score one for the Irish bond (and CDS) vigilantes? Ireland’s government announced that severely troubled bank Anglo Irish would be split up on Wednesday — statement via the Irish finance ministry:
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.
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.
Surprisingly fast move, this…
Note that the Irish finance ministry seems to have jumped the European gun here, given that EU officials were meant to be deciding between the options of splitting up Anglo Irish, or winding the whole thing down. This decision is still up to the EU to approve, of course.
Note too that this comes after the extension of short-term guarantees for Irish bank funding to the end of the year; Bank of Ireland extending the maturity of some debt; and Irish Nationwide effectively issuing bonds to itself.
So, nice to have some Irish banking certainty at least, we’ll bet.
Update (1630 BST) – Still confused? Irish finance minister Brian Lenihan on the decision, flashes via Reuters:
RTRS-IRISH FIN MINISTER LENIHAN SAYS TO ANNOUNCE IN DUE COURSE HOW TO DEAL WITH UNGUARANTEED ANGLO IRISH DEBT
RTRS-IRISH FIN MINISTER SAYS NOT GOING TO DEFAULT ON ANGLO IRISH SENIOR BONDS BECAUSE IT WLD HURT SOVEREIGN BORROWING PROSPECTS
RTRS-IRISH FIN MINISTER SAYS IRISH BANKS WILL REFUND THEMSELVES, THERE WILL BE NO CLIFF AT END OF MONTH, THAT SHLD REASSURE MKT
Related link:
Ireland’s exteeeeended banking issues – FT Alphaville