Honohan says net cost of Anglo bailout to hit €25bn

THE net cost to the taxpayer of the collapse and nationalisation of Anglo Irish Bank will be €25 billion, according to the governor of the Central Bank Patrick Honohan.

Addressing the Small Firms Association Mr Honohan also said that he believes that the National Asset Management Agency (NAMA) will break even because of the low values it has paid banks for transferred property loans.

Mr Honohan estimated that the costs to the Exchequer of the recapitalisation and restructuring of the Irish Nationwide Building Society at about €2.5bn in net budgetary costs. “With the NAMA purchases not yet completed, I can’t quite narrow the Anglo figure down precisely. However, rounding up recent estimates to be on the safe side, it would be a pessimist who would put the taxpayer’s net cost above €25 billion. That is a huge sum and it’s unconscionable that it could have arisen. I will have more to say about this in my report to the Minister for Finance at the end of the month.

“The main point today, then, is to stress that the cost is manageable. Shocking, if you want, but manageable. I make no excuse for using that word. It is important that everyone, at home and abroad, recognises that this is a sum that is not a game-changer in terms of the public finances. It represents about one year’s borrowing requirement at current rates. It is not destabilising,” he said.

And Mr Honohan said the Government’s capital injections of last year into AIB and Bank of Ireland looks like it will be well-remunerated.

“This takes account of the low prices being paid – much lower than originally envisaged – for the loans being transferred to NAMA. The NAMA purchases replace risky property-related loans with risk-free NAMA bonds and are part of the process of putting them on a solid foundation. By the way... experts on the property market assure me that, at the low prices they have paid, that organisation now has a good chance of breaking even over the coming years, as indeed has been its stated intention all along,” he said.

And it appears European Central Bank President Jean-Claude Trichet is buying time for the euro region as investors speculate on whether the €750 billion bailout plan is enough to stop the sovereign debt crisis, according to Bloomberg.

Spanish and Portuguese bonds have rebounded as the ECB snapped up government debt, reversing a rout that threatened the nations’ ability to borrow. At the same time, the euro has weakened against the dollar on concern about how indebted countries will cut deficits and access aid if needed. “The game plan is clearly to use the ECB as shock troops to force peripheral bond yields down and rebuild market confidence,” said Marco Annunziata, chief economist at Unicredit Group in London. “If that works, then there might be no need to activate the stabilisation fund.”