Anglo Irish Bank Corp., the lender that pushed the country to the brink of bankruptcy, will have 3 billion euros ($4 billion) less to repay creditors after the government sped up its liquidation, two people with knowledge of the matter said.
Finance Minister Michael Noonan’s February decision to wind up Anglo Irish in 2013, seven years earlier than planned, will force the bank to forgo funds the government had pledged in 2010 as part of the lender’s bailout, said the people, who asked not to be identified because the talks are private.
That will leave Anglo Irish with less cash to pay unsecured bondholders and litigants unless the government puts more money into the company, once the country’s top real estate lender. Among the losers are as many as 120 litigants suing the bank and 16 customer-owned lenders which bought an equity-linked bond from Anglo’s private bank. Noonan said last month it’s still too early to put a value on Anglo Irish’s remaining assets.
“There’s less meat on the carcass of the dead bank for creditors to share than they might have thought,” Lorcan Roche Kelly, chief Europe strategist at Trend Macolytics LLC, said in a telephone interview from Sixmilebridge, County Clare. There’s “no prospect” of the government injecting more funds to make up the shortfall, he added.
The controversy surrounding Anglo Irish’s bailout was reignited last month when the Irish Independent published transcripts purporting to show how executives planned to understate how much central bank money the lender would need so that once the authorities had provided aid they would be unable to refuse bigger infusions in future. In one recording, an Anglo Irish executive sang “Deutschland Uber Alles” after the bank used its government guarantee to woo German depositors. The executives have denied any wrongdoing.
Paul McSharry, a spokesman for Anglo Irish’s liquidators, Kieran Wallace and Eamonn Richardson of KPMG in Dublin, and officials at the finance ministry declined to comment.
The Irish government took over Anglo Irish in 2009 after loan losses soared in the wake of the worst real estate crash in Western Europe. The cost of saving the country’s banks later forced the government to seek a rescue from the International Monetary Fund and European Union.
Rather than giving Anglo Irish a direct cash injection, which would have forced the government to raise money, then-Finance Minister Brian Lenihan funded most of Anglo Irish’s 34.7 billion-euro rescue by issuing the bank promissory notes, a form of IOU. That meant the state didn’t have to borrow money immediately as it struggled to avoid tapping international aid.
Anglo Irish’s bailout was equivalent to about a fifth of the country’s gross domestic product and more than 50 percent of the 64 billion euros the country pledged to its banks. The bank, merged with Irish Nationwide Building Society and re-named Irish Bank Resolution Corp. in 2011, could use the promissory notes as collateral to access emergency financing from the Irish central bank.
The government said earlier this year it will liquidate IBRC and replace the notes, due to expire in 10 years, with bonds with maturities of as long as 40 years to cut the near-term cost of Anglo Irish’s bailout. The government had been due to give Anglo Irish 3.1 billion euros a year for the next decade to pay down the notes. Now, the first capital repayment is due in 2038.
On the day of the liquidation, Anglo Irish classed the promissory notes as a 28 billion-euro asset, while the government and central bank recorded them as a 25 billion-euro liability, the people said. The difference arose from how the bank accounted for the government’s two-year interest holiday, the people said. The bank will have to write off the 3 billion-euro difference this year, the people said.
The loss will add to any shortfall found by the liquidators as they settle the bank’s remaining assets and liabilities. Noonan said last month IBRC’s remaining assets may be sold to private investors or, if they don’t fetch a reserve price, to the government’s National Asset Management Agency by the year-end. The government expects to set that minimum price by the end of November.
The bank’s loans were valued at 16.6 billion euros in June 2012, excluding 10.9 billion euros of provisions for future losses, according to its most recent set of public accounts.
The IMF warned last month that the government’s finances face a “potential one-off shock” if the state has to compensate NAMA, the country’s so-called bad bank, in the event that the loans fail to sell for more than the reserve price.
Any losses are likely to be mitigated by equity remaining on the bank’s balance sheet, the people said. That amounted to 2.7 billion euros as of June 30, 2012, according to the lender’s most recent set of public accounts.
Unsecured creditors are at the back of the queue to recover their money from the liquidation, the finance ministry said in February. Litigants whose lawsuits against the lender succeed will also rank as unsecured creditors, Noonan has said.
IBRC had 169 million euros of unsecured debt outstanding at the end of June 2012, according to a company filing. About 33 million euros of it was redeemed at face value last year.
The group of 16 credit unions, or customer-owned lenders, faces losses of about 15 million euros after buying an equity-linked bond from Anglo Irish in 2005. The group has hired a lawyer to explore its options, the Irish League of Credit Unions said in a statement. It declined to identify which members face losses.
The government, which is already paying out as much as 1.1 billion euros to depositors and some senior bondholders, may also be unable to recoup that money if unsecured creditors are facing losses, according to the finance ministry.
IBRC was the target of 120 lawsuits at the time of its liquidation, Noonan said on July 4 in a written response to a parliamentary question from Pearse Doherty, a lawmaker for the opposition Sinn Fein party. The minister declined to identify the claimants or how much the lender is setting aside for potential costs.
The most high-profile case is being taken by the family of Sean Quinn, Ireland’s former richest man-turned-bankrupt, who claim Anglo Irish illegally gave them 2.4 billion euros of loans in 2008 to buy shares in the bank and prop up its value. IBRC has said it will defend itself in the proceedings.