Anglo Irish Bank Corp., nationalized by Ireland’s government last year, will be split into two banks and part of it wound down or sold.
Dublin-based Anglo Irish will be broken into a “Funding Bank” and an “Asset Recovery Bank,” the Finance Ministry said in a statement today. “It is intended that in due course the Recovery Bank will be sold in whole or in part or that its assets will be run off over a period of time,” it said.
Standard & Poor’s last month said Ireland may have to pump as much as 35 billion euros ($45 billion) into Anglo Irish, which collapsed last year as the country’s property market slumped. Ireland is seeking to resolve the issue as its sovereign borrowing costs soar on concern the weight of bank bailouts will cripple the nation.
“Any decision that provides clarity on Anglo is a positive,” said Oliver Gilvarry, head of research at Dolmen Securities in Dublin. “The sooner we see the final bailout figure for Anglo Irish and the Irish financial system in general, the better.”
The finance ministry said the central bank will determine by October how much capital will be needed by the two Anglo Irish institutions it creates from the split.
The premium investors charge to hold Irish 10-year debt over the German equivalent, Europe’s benchmark, has risen to a record in the past month. It was at 371 basis points today, almost nine times its average over the last decade.
“At the margin this helps because we have a level of clarity we didn’t have before,” said Simon Barry, chief economist at Ulster Bank in Dublin. “The outstanding issue is that the government gives more clarity on the ultimate recapitalization on Anglo. It will be very important that this uncertainty is addressed as soon as possible.”
Anglo Irish Chief Executive Officer Mike Aynsley said in an interview earlier today that clarity from the government on the future of the bank may help stem a decline in deposits. Customer deposits fell by about 4 billion euros to 23.1 billion euros in the first half of the year.
“In order to restore the reputation of the Irish financial system, it is essential to bring finality to the problem of Anglo Irish Bank -- our most distressed institution,” the Finance Ministry said.
Anglo Irish Chief Financial Officer Maarten van Eden said today that the bank’s reliance on short-term funding from the European Central Bank and the Irish Central Bank has increased from 26.3 billion euros at the end of June. He declined to disclose the current figure.
Van Eden also said it would be a “disaster” if Anglo Irish was to default on its bonds. Credit-default swaps on the bank soared 64.9 basis points to 780.81 earlier today, data from Credit Market Analysis Ltd. showed.