Anglo rescue costly but manageable, says Honohan

PATRICK HONOHAN – the Governor of the Central Bank – has described the exercise of rescuing Anglo Irish Bank as “costly, but manageable”.

Speaking over the course of the weekend in Hong Kong, at the start of an Asian lecture tour, Professor Honohan also reiterated that the injection of emergency cash into Anglo will bump Ireland’s 2010 budget deficit up to around 17% of GDP, about 6% higher than initial targets – a point he previously made at the recent publication of the Central Bank’s annual report for 2009.

Anglo’s bailout charge rose by nearly €1 billion past the initial €22bn estimate, last week, with Government saying it was still unclear as to how much would be needed overall to steady the nationalised bank.

The uncertainty over the final extent of the Anglo bill also contributed to a widening in yields between Irish 10-year bonds (which are forming part of the NTMA’s latest bond sale today) and German bunds, basically meaning that the cost of Government borrowing is increasing.

In an interview with the Daily Telegraph last week, Prof Honohan described the level of increase in the yields as “ridiculous”.

Over the weekend, he said that a final €22bn-€25bn bailout for Anglo would be a “shock to the system“, but “a manageable sum”.

The Anglo picture is set to become clearer once its full amount of loans are transferred to NAMA, the delayed second tranche of which is now expected to take place this weekend.

Much of what Prof Honohan said over the weekend has been communicated by him in recent weeks.

He also reiterated his feelings regarding the removal of the bank guarantee. Both Anglo and AIB have called for it to remain in place past its December deadline, to allow for full economic stabilisation.

Prof Honohan has already stated that it is highly likely that the scheme will overrun its intended deadline, but that it will probably be wound down sooner rather than later.

“I’m not in a rush to remove the guarantee, but I don’t want it to be in a period longer than quarters, rather than years; because if they’ve done the job properly that won’t be necessary,” he said in Hong Kong.