Losses at banks to hit €100bn, says Dukes

ANGLO Irish Bank is expecting to show a loss of €17.6 billion for 2010, the largest annual loss in the country’s corporate history, as the institution’s chairman, Alan Dukes, said the Irish banking system’s total losses may amount to €100bn.

Mr Dukes also stated that “a clean banking core will require something in the region of €50bn.

“A clean banking restructuring implies the acceptance of irrecoverable losses,” he added.

The tainted nationalised lender said yesterday — on the same day that initial steps towards its ultimate winding down were taken — that the 2010 loss will include an impairment charge of €7.8bn and a loss of €11.5bn on the sale of assets to the National Asset Management Agency (NAMA).

The bank will beat its own €12.8bn record losses from the previous year.

Approximately €2.5bn in impairment charges are directly related to NAMA-based loans. In total, Anglo will transfer €35.8bn of loans to the state’s bad-bank. A further €1.1bn is due to transfer to NAMA during the first half of this year.

Anglo said yesterday that the final loss on its NAMA transfers “will only be determined following the completion of NAMA’s due diligence in respect of all assets transferred.”

The bank — which was nationalised two years ago — is due to file its 2010 annual accounts next month.

Yesterday, High Court orders were secured by the Minister for Finance permitting the first steps in a process intended to achieve the winding down of Anglo Irish Bank and Irish Nationwide Building Society.

Those steps, a condition of the EU and IMF bailout plan for Ireland, include the transfer — following an immediate auction — to another financial institution of deposits and “corresponding assets” in both institutions.

The ongoing decrease in deposits in both Anglo and INBS is destabilising them and the Irish financial system, the court was told.

Some material relating to the position of Anglo and the INBS were blacked out in documents provided to the media. The redacted material was described as “commercially sensitive”.

If the deposit sales process has a negative impact on the capital position of Anglo and INBS, the state will have to provide additional capital but the impact of any capital loss would be “more than compensated” by having certainty about the restructuring and work-out plans for both, the state said.

Both institutions are also to take various other steps, including disposal of Anglo’s Wealth Management Division and transferring loans to NAMA, before merging into a smaller, 100%-government-owned institution by March 31 next.

Ann Nolan, second secretary general in the Department of Finance, said the minister believed the orders were urgent and necessary to address an “imminent threat” to the financial stability of the institutions and the state’s financial system.

There was concern that any prolonged auction could significantly reduce the amount of deposits held and lead to “unjustified concerns” about their safety, leading to very significant withdrawals, she also said.

Ms Nolan said the court orders were also necessary to address concerns related to some €7bn of Anglo’s debt securities held by mainly non-Irish investors. If those bondholders sought to invoke certain clauses as a result of the proposed restructuring and insisted their bonds were immediately due and payable, Anglo could become immediately insolvent unless more liquidity was provided.

She did not consider the orders sought by the minister amounted to an event of default, Ms Nolan added. Given the potentially serious consequences, it was necessary to avail of the protection offered by Section 61 of the Credit Institutions Stabilisation Act (CISA) which “switched off” the right to enforce or accelerate the bondholders’ debts.

The European Commission and IMF “pressed very strenuously” to have the measures put in place urgently, the court also heard.

The Joint EC Restructuring and Work Out Plan for Anglo and INBS submitted on January 31 last to the European Commission requires both to take several measures, including reducing net lending to customers and transfer remaining eligible loans to NAMA by March 31 next.

Anglo must also formulate detailed plans for rationalisation, including closing its branches in Britain, Vienna, Dusseldorf and Jersey and dispose of its Wealth Management Division by March 31 next. INBS must reduce its net lending to customers and limit increases in residential property lending to contractually committed amounts or sums arising from restructuring of existing mortgages.

Granting the orders, Mr Justice Brian McGovern said he was satisfied the minister had complied with the formal procedural steps required under the CISA, including notification of the application to the governor of the Central Bank.

He was also satisfied the minister’s belief that the orders were necessary was both reasonable and lawful.

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