Cowen: Anglo wind-down would cost €70bn

AN immediate wind-down of Anglo Irish Bank would cost €70 billion and was not in the interest of the Irish taxpayer, Taoiseach Brian Cowen said yesterday.

“The idea that it could be wound up, with us having to come up with upfront costs of €70bn, wouldn’t be in the interests of the taxpayer,” he said.

Anglo posted losses of €8.2bn for the first six months of this year, pushing losses for the 21 months to end June 2010 to a staggering €20.9bn.

The mounting losses have led to calls for an immediate wind-down of the bank, which played a lead role in fuelling the propertybubble.

Saving Anglo was seen as a vital step in protecting Ireland’s credit status after the bank crisis erupted in late September 2008.

The estimated cost of €35bn to keep Anglo open has spooked international investors and Ireland’s credit rating continues to be downgraded, adding significantly to the cost of state funding.

Anglo’s new management has proposed carving outa small functioning bank via a “good bank/bad bank” split.

Under mounting political and market pressure, the Government signalled this week that a wind-down of the bank may be the best option.

Due to the delicate state of the bank, huge risks are involved in shutting it down even over a long-term period.

That decision could make markets even more nervous and lead to a withdrawal of deposits which would force the Government into the market to borrow billions more to meet those withdrawals.

It is already struggling with a structural deficit and has to borrow €20bn this year to run the country.

A wind down over a 10-20 year timeframe would avoid a fire sale of its assets, but at this stage risks panicking depositors.

Given the amount of bad press the Government has been getting because of Anglo it might be better to close the institution down, said Dermot O’Leary, chief economist with Goodbody Stockbrokers, echoing sentiments expressed by the opposition parties for some time.

The gamble for Cowen and the European Commission, which has the final say on Anglo’s future, is they will not know what damage an “orderly” wind-down will wreak until they do it, he said.

“There is no test run for this kind of thing,” Mr O’Leary told Reuters.

Mr Cowen said the Government is anxious to bring the Anglo issue to a close.

Discussions with the European Commission are at an advanced stage and he confirmed the Government has already sent its final documentation to the Commission on the issue.

Unconfirmed reports from Brussels suggest the Commission also favours winding down the bank.

Anglo’s management have suggested a good and a bad bank solution in its Brussels’ submission, but events of the last few weeks have seriously eroded the chances of keeping the bank operational.