THE European Commission reacted positively to the Government’s plan to effectively wind-down Anglo Irish Bank, but warned that a number of important aspects needed to be clarified before the Commission would sign off on it.
The outline of the plan to hive off deposits into a funding bank, wholly owned by the Department of Finance, was agreed with the Commission during discussions over the past few months.
The Commission will study the final proposals to ensure that the plan forAnglo Irish, which has received around €25 billion from the state, does not pose unfair competition.
It must agree to the plan before the Government can move ahead with it, but said it was waiting for a formal notification and full details.
Provided it received these swiftly, together with appropriate guarantees and qualifications, its decision should be issued before the end of the month.
The Commission expressed doubts about the initial plan submitted in late May to split Anglo Irish Bank into a good and bad bank, with the good bank continuing to function in the market place offering all the usual services.
But the Government began to change its mind in recent weeks as markets became more nervous about the country’s banking system. The need to rollover about €26bn of debt sent the cost of borrowing to record levels.
Competition Commissioner Joaquin Almunia said: “I welcome the clarification by the Irish Finance Minister on what would now be the Irish preferred option regarding Anglo Irish. I view this new option positively as it would deal better with the distortions of competition.”
It is understood the main function of the Funding Bank – to recover as much of the assets as possible and fund the “bad bank” – would comply with competition rules.
However, details, such as how long it would take to run down the “bad bank”, has yet to be finalised. It is unclear if the Commission will have a say in what happens to the senior bond holders, believed to be owed about €16bn.
The Anglo decision has been carefully choreographed with the Commission over the past four months and came to a head on Monday with the Government’s request to extend the bank guarantee for short-term corporate deposits in the Irish banks, including Anglo Irish.
Kevin McConnell, banking expert with Bloxham, said the Commission may have a say in how long the bank will be wound down over. “It should be 10 to 15 years, or at least over a considerable length of time, to spread the cost.”
The Commission may also have a say in what happens to the senior bond holders, he said. “The Commission may decide whether they should get what they are due over the next few years or that they should be punished and receive less,” he said.
The European Central Bank has also been involved in high-level discussions with the Government as it has put €26bn into Anglo and must be repaid.
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